Commodities Trading

What is commodities trading?

Commodities trading is simply the purchase and sale of commodities for future delivery. The commodities are always traded with a view to making a profit on them. Commodity traders, investors or fund managers may buy either commodity futures or the physical commodity itself. Investors should be doing their homework before they even begin to think about investing in something like this. It is a different type of investment for sure, but that doesn't mean you should jump in blindly.

What to think about when investing money into commodities?

First off ask yourself some simple questions:

• Do I know anything about this market?
• Am I able to do some research and become knowledgeable quickly? Can I afford to take a loss?
• Is this a market that is likely to grow in the coming years? Am I comfortable losing my initial investment?
• Can I handle and manage risk well? If not, commodities trading may not be for you.
• Are my emotions going to get the better of me if the trade goes against me initially?
• Will volatility affect my trading if I don't have the right tools or strategy?
• Will my emotions get in the way of sound decision making? Will fear of losing money cause me to make bad trades?

If you answer most of these questions with a yes, then commodities trading may not be such a terrible idea. If your answers were mostly no's, then you may want to look into something else. There are lots of options that you can research before investing, so don't feel like you have to jump in on the first thing or idea that comes across your path.

You may also want to consider something simple like real estate optioning as an alternative because it is a little less risky and offers great returns.

What are the major world commodities?

There are many commodities to trade. The major ones include:

Precious Metals

Natural Gas

Oil - Crude Oil and Petroleum Products

Coal - Hard Coal and Lignite (Brown Coal)

Palladium - A precious metal used in jewellery, dentistry, automobiles, electronics and more

Nickel - Used in electroplating, stainless steel alloys, etc.

Wheat

Cotton

Silver - Silver is one of the most commonly used precious metals. It has been used for over 5,000 years as money for transactions. That's a pretty good track record!

Corn

Bengal Cotton

Aluminum - Aluminum is the most widely used metal in the world. It has a wide range of uses from airplanes to beverage cans.

Natural Rubber

Butter

Milk Powder

Alfalfa Hay

Canola Meal

Cottonseed

Crude Palm Oil

Lentils

Maize - Corn is the only grain indigenous to America, where it was first cultivated. Maize was one of the major reasons that Europeans came to the New World.

Corn oil

Neutral oils (FO) and fatty acids (FAs)

Pork Belly - Pork bellies are the large fat deposits that can be found on a pig's stomach. It is also sometimes referred to as pork trimmings.

Soybeans

Sunflower seeds

Trading in these markets for most of them will require some more knowledge than trading in currencies or stocks. You will need to have solid information about the market if you want to do well in it. If you don't have the information, try some of the following tips for traders:

Keep a trading journal - This is something that more and more traders are doing today. The reason for it is simple, it helps to track your losses. When you see them in black and white on paper, it can make a huge difference. You'll be able to see if there are problems with your trading that you didn't realise before.

Investigate the news in the area - You want to look for news, both good and bad, on topics like weather patterns, world trade policies, supply cuts or anything else that can affect prices. The last thing that you want to do is be caught off guard by an unexpected shift in the markets.

Pre-determine your strategy - Before you even start trading, you need a strategy for everything that you are going to do. This includes knowing what trades will get triggered and when they will trigger. You may want to have two different strategies as well: one for bullish conditions and another for bearish conditions.

Determine your risk level ahead of time - You need to know how much money you can lose without it affecting your lifestyle or your ability to trade again. If you don't know where the line is, you'll be more inclined to put yourself in situations that are risky and will lead to bigger losses. Your system may not have the chance or ability to save you from a bad situation.

What moves commodities market prices?

Commodities, as a whole, tend to be affected by things that are happening in the news. This can include weather patterns around the world and government policies. When you add this in with the fact that prices can vary based on where they are being traded and you have an interesting moving target.

If you want to trade successfully in commodities, you need to know all of the factors that can affect prices. This is one of the reasons why so many people who trade futures and options on commodities, end up trading stocks too.

The basics are simple: supply and demand. If a commodity is in high demand at a certain price point, but there aren't enough suppliers to meet this demand, the price will go up. This is easy to see in things like butter or pork belly. These products are something that people just have to have and they are willing to pay more if they need them.

How do you trade commodities?

There are many different ways to trade commodities. Some traders concentrate on investing in futures contracts, while others prefer to trade options. Some traders even use fundamental analysis, which is looked down upon by most other traders, but can help you out if you know what you are doing and have accurate enough data.

Tailor your trading strategy to fit a specific commodity. For example, it's probably not a good idea to be trading pork belly if you aren't well versed in that area.

The easiest way for a beginner trader to get started is to go with the tried and true method of purchasing a futures contract. These simple contracts can be purchased from local or internet sources at any time during the day, though they typically trade on an exchange during times when prices are set.

Futures contracts are regulated and easily available to all investors. If you want more of an investment and you have the funds, you can consider investing in a commodity ETF. This will give you exposure to the commodity without having to worry about risk as much. You do have to pay a higher price for this kind of alternative.

Don't forget about options. Options on commodities can be a good way to get exposure to large movements in the market without actually having to put up all of the money for your trades. This gives you more flexibility and it's another great option if you are already making these types of investments anyway.

Think like an owner - If you want to make smart investing choices in the commodity markets, you need to invest with all of your senses. This includes your eyes and ears as well as your mind. If you rely on any one sense too much, you could end up missing something that is vitally important to your investing success.

This means what it sounds like; if you are going to be trading commodities, don't just rely on the information you hear from a news source. They may have an agenda or they may not know what they are talking about.

You will also want to look at anything that can give you clues about what is going on in the world and how it might affect your investments. You can do this by looking at numbers such as unemployment, trade balances and even consumer confidence.

Keep an eye on the weather - Weather plays a huge role in commodity prices. If your investment is tied to something like corn or cotton, you will want to keep track of what weather patterns are happening around the globe.

Many traders become experts at predicting how snow in Siberia or drought conditions in the southern hemisphere can affect their investments. It's not as easy as it seems, but if you are willing to put in the time and effort, you should be able to develop skills that will help you make smarter decisions.

Track all of your trades - You are going to want to keep a close eye on how much money you spend on any and all trading activities. Don't just look at the total amount of money you have made or lost, but also the rate at which that number is changing over time.

You will be able to get a lot more out of your trading if you can learn from your successes and failures. You will know where you need to improve.

Benefits of commodities trading

The best thing about commodities trading is that you are able to make a profit in both rising and falling markets. This means that if the commodity or items that it represents actually fall in price, you will be able to get out before your money evaporates too quickly.

Commodities are also one of the few areas where a novice trader can make a lot of money for themselves. This is because you don't need to have an advanced understanding of the market in order to make smart investing decisions.

If you are looking for a way to supplement your retirement income, commodities trading could be one of the best ways available today. It can also be a good way to manage your debt if you are an investor looking for ways to lower the total amount of money you owe.

Commodities markets are large and their impact is felt all over the world on a daily basis. There is no telling how long they will continue to grow in size or in popularity, but it's going to be a long time. This is a good thing for anyone who wants to get involved in the market while it's still fairly new and growing.

Keep an eye on the commodities market and you could find yourself enjoying some very lucrative opportunities down the road. No matter what your financial needs are, there are likely to be investments that will help you grow your wealth.

Risks of commodities trading

Commodities will always have some risk, no matter how safe they seem. The most important thing that you can do to avoid big losses is to just be careful with your money.

People who use techniques like trading with a small amount of their total wealth are generally going to be ahead of the game when it comes to commodities trading. However, if you are risking too much in a single trade, you might want to consider the potential consequences.

Futures trading is not without risks . If you are planning to go into that market there are some things that will change your mind. Commodities futures contracts can be difficult investments for those new to futures trading. This type of market is for professional investors and traders, not amateurs.

On the whole, there are some things that you will need to know before getting involved in futures trading . If you want to be successful with your investments it is essential that you learn as much as possible about commodity trading first.

If you don't do this, then there is a real possibility that your first attempt at futures trading will be a disaster.

There is more to futures trading than just commodities. It can take time to learn everything you need to know in order to make smart investing decisions when dealing with this type of market.

There are many trading strategies that you are going to have to consider, as well as an overall understanding of the commodities markets.

Now that you have a better understanding of Commodities Trading - consider Global Prime for your next trade.