Investing in mutual funds and bonds is relatively stable, when compared to commodity trading online, as it sometimes can be extremely volatile. Traders earn significant amount of money quickly in the market, but also lose it easily.
Beginners must not start trading in commodities directly, but first get familiar with investment basics.
What is commodity?
Commodities are raw materials needed to keep work economies in motion. Currently, commodities are divided into four primary categories.
Metals – Gold, silver, copper and platinum
Energy – natural gas, crude oil, gasoline and heating oil
Agricultural – cotton, sugar, coffee, corn, soybeans and cocoa
Livestock & meat – Pork bellies, lean hogs, feeder cattle and live cattle
Traders anticipate the future price of commodities, and make money from the fluctuation in its value over the period of time.
Two kinds of commodity trading investors
Hedgers – Large corporations depend on constant and dependable price for basic materials, for example the airline sector. Basically, airlines buy future fuel contracts to prevent price fluctuations.
Speculators – In this kind there is no commodity purchased but contracts are bought to be sold later.
For examples, many national and international airlines have gone bankrupt due to the instability in the energy market, and not because of the fluctuation in the prices in their sector.
How to trade?
Trading cannot be learnt overnight, it can be honed with experience. However, you can enhance your chances for trading effectively in commodity market with the help of a successful broker or trader. At first, it might be a real challenge to follow the strategies applied by the seasoned traders. Thus, online courses are a convenient way to learn all the trading strategies.
Learning is a combination of knowledge gained from these online courses, reading and practicing what you have learnt. There is no ideal way that can guarantee success, but with proper knowledge, practice and time, you will turn out to be a successful commodity trader.
Usually, people believe that commodity trading is risky and unpredictable. You must understand that the issue is not with the trading system, but it is because of uneducated investors jumping in to getting rich misconception instantly. They fail to understand how to make use of leverage. Trading markets heavily depend on leverage. Understand the risks, make calculated decision and diversify your portfolio.
How to start commodities trading online?
The process of trading commodities online is fairly simple. First you need to select a commodity broker. An excellent trading platform provides charts, quotes, order entry and strategy analysis.
You will have to fill a form to register an account. The form comprises of financial information and risks included in trading commodities. The brokers need to know your financial status because commodities are extremely leveraged, and the chances of you losing more money than invested are more. In this way they know your credit worthiness.
Once you get an account approved you will need to fund the account. Your account size will be based on your risk tolerance and comfort level.
Before starting commodity trading with real money, it is strongly advised to begin with demo account. Once you get familiar with placing orders, it will help you prevent making errors, while trading with real money.