When trading commodities, there is a lot to be said about choosing the right commodity to trade in, and this just depends on how well you want to do in the market, either in the short term or the long term. Some commodities are built for long term, and quietly confident performance, while others are way more volatile and require that you pay a lot of attention to the market to be able to make some money.
Commodity Forex trading is based on a specialized type of fundamental analysis of the Forex markets. It is a strategy that recognizes that the economies of some countries are heavily dependent on certain imports or, more often, exports of raw materials such as oil, precious metals, agricultural products that contribute to an individual nation’s GDP (Gross Domestic Product). Therefore, the price of those countries’ currencies will be linked to rises and falls in the price of those particular commodities, and foreign currency traders can profit from following those prices.
When the economic crisis hit, it threw the market quite out of whack in the sense that it needed and caused plenty of commodities out on the open market to perform in strange ways. Commodity all depended on demand, and when you have a situation where there is no longer any demand, you get a problem where most traders become investors and have no choice but to hold on to their desired commodity till the economy recovers again
Many new traders ask how long it takes to learn to trade in commodities. It can take a couple of months for a diligent individual to learn to trade commodities. However, for those, who question about mastering trade commodities, they should know that it also may take a lifetime to trade commodities.
If you wish to make consistent profits from trading commodities, you will have to trade consistently. Never trade with the intention of making large sums of money right away. This is why usually 80% to 90% of the traders lose their money through commodities trading. When you are learning to trade commodities, a time will come when you achieve the breakeven point. This is the point where trading becomes profitable.
Commodity trading is held in commodity markets. It can be the derivatives market or even the spot market. In the derivatives market, commodities are traded via different financial instruments whereas, in the spot market, commodities are bought and sold hand to hand. Usually, Future is a financial instrument that is used for trade exchanges in the commodity market.
A futures exchange is a standardized contract. It is set on the basis of particular futures exchanges. These include the size, the type, and quantity of the commodity along with the transaction price and the place where the commodity is to be delivered.
Some Regulated Futures Exchanges negotiate the future contract. It is a place where the buying and selling orders are brought to a single place on the exchange.
Having sufficient sources of information is one of the advantages that traders have when they engage in online commodity trading. They are also guided with tutorials as well as with webinars in order for them to get a good grasp of the procedures that they need to follow when they perform their trading activities. Traders may also consult with their brokers especially about their concerns regarding their online commodity trading. Traders have to be equipped with sufficient knowledge on how the commodities market operates and how the exchanges work.
Traders are provided by their brokers with trading platforms. This gives them the advantage of trading at real time and their transactions are executed without too much problem. Traders do not have to worry about commissions because they are generally low and they may also incur lower overhead expenses. With these advantages, traders may be able to explore other options that they have.
Online brokers will also provide their traders real-time information on quotes and access to charts with indicators. This will greatly help them in analyzing the market conditions that are affecting the commodities that they are trading. Traders have the advantage of being provided with the necessary information that they need in order to make their trading profitable. Those who are able to manage their trading accounts and activities properly may be able to attain the profits that they have aimed for.
Although online commodity trading also poses some risks just like any other forms of trading, people may be able to decrease their risks especially if they are well-informed and if they have analyzed the market correctly. Traders should also be aware of their trading activities so that they do not commit the error of over-trading because of the possible losses that they may incur. Traders need to discipline themselves especially if they decide to engage in online commodity trading.
The main channels of trade in commodities involve holding the actual goods in hand, trading in mining stocks or trading directly in commodity futures.
Holding actual goods in hand can be quite problematic. First, you need a secure storage area to keep them, and you will need manpower to handle the physical goods. If the commodity has a shelf life, such as food commodities, storing them can be a headache too. Unless you’re e a trader who trades those commodities in the magnitude of tons, you’re better off trading commodities via other channels.
Mining stocks are a good venue for diversifying your exposure in the commodities market. Prices of commodities are dependent on supply and demand, but mining stocks can become profitable even when prices of commodities do not go up. Lowering of production costs of the commodity can increase profits without having the prices actually changing. This commonly happens in a recession when there is the oversupply of labor and production costs go down.
While commodity prices tend to go down during a recession, this occurs in conjunction with lowering production costs and this makes mining stock somewhat more recession resistant than normal stocks.
Trading in commodity futures is simply predicting the future prices of yet to be produced or mined commodities and paying a price to book them. Unlike physical ownership, there is no real inventory involved in futures. All you invest in is the ownership of future production, and you can sell that ownership.
Trading in futures and physical ownership is simply a buy low sell the high game of numbers, there is no real growth of the industry. But of course, trading improves market liquidity and results in a fairer trading environment. Investing in mining stocks is about using your money to grow a real business that creates more value; in this respect, investing in stocks in healthier for the economy than simply trading in futures.
One of the best decisions that you can make when expanding your investment portfolio is to put thought into commodity trading. Trading commodities are capable of providing asset allocation that is truly ideal and is also capable of giving you a bit of an extra hedge against inflation because you are buying into something that has a great amount of global demand. Commodity trading is not one of the investment vehicles that people consider right away, so there is a decent amount of nervousness and apprehension associated with when to invest, where to invest and how to invest.