Commodity trading is regarded to be the oldest for of speculation. This is attributed to the spontaneity in its trading. A lot of merchants even go to the extent of vouching that because of the high level of speculation involved, commodity trading is speculation in its purest form. The markets are highly volatile and the leverage is also quite high. And this can also be the reason why a lot of people shy away from commodity trading. It is always recommended that before you enter full-fledged into commodity trading, it is better to put your little toe and test the waters by investing very little before understanding whether this kind of trading is your cup of tea at all.
Here is why the commodity market is fraught with risks:
The process in the commodity markets are presumed to be extremely volatile and even the slightest change in the socio-economic or geo-political fabric of the society can send shock waves across the prices making the prices of the basic commodities into crazy high value.
The prices can be affected by
Political turmoil in the country;
Changes in the standard of living;
Fluctuations in the currency market;
Climatic changes like cyclone, hurricanes, etc, and
Natural disasters like earthquake, droughts, etc.
So, you see, practically very little changes or fluctuation in the market has the capacity to alter the prices in commodity trading and therefore it is one field that not many like to tread.
However, the fortune favors the brave:
We have all heard the adage that the person who takes risk carries the bird home. In spite of being the most volatile of markets, the commodity market is by far the most profitable kind of speculative trading. If you are brave and you can use winning strategies, there is nothing that can stop you from making super profits in this field.Here is a ready reckoner on tips to make it big here and not be afraid of making mistakes. After all, mistakes are a proof that you are trying.
What is commodity trading?
Trading in raw materials that are primary products that need to go into production is the subject matter of the trading. However, there is never a need of taking actual physical delivery of the product. The commodity is traded in the form of equity trading. To understand this more clearly, let us cite and example. Say that Mr. A who is a commodity trader in Gold speculates the rate of gold price for a kilogram of gold on a particular day. Now, there is no need that Mr. A must have the gold in his possession. The gold can be in the market and he may virtually trade on the gold without even touching it for a minute.
What are the categories under commodity trading?
There are four categories under commodity trading they are
Energy trading: oil and oil products, natural gas, gasoline etc fall under energy trading;
Metal trading: precious and semi-precious metals fall under this category of trading. Precious metals such as gold and silver and semi-precious such as iron, copper, etc. Livestock trading: here, the commodities such as meats from different animals, spare parts and leather hides of the animals are included. Agricultural commodities: food grains and other food items like sugar, tea, and coffee are traded under this category. The most attractive commodities are those that have the highest volatility in the market are very few and they are oil, the yellow metal gold, and coffee!
The secret is trading with confidence:
There is a feeling that people have and that is commodity trading is not for everyone. There are heavy words such as indices, margins, leverages, hedging and future that will frequently fill the air and try to threaten you. You may feel that you have a rough idea of what it means but as you become experienced with time, you will learn what they mean and what the implications of using such terms in day to day trading are.
Dive in with confidence:
If you are scared that you may end up losing more than you invested then we advise you to stay clear of this market. But if you think that you can muster the courage to break even and start making profits confidently then we will give you a green signal. Leveraging is what you must understand in this field. In the simplest terms, leverage means risk. So, being able to calculate the amount of risk in each commodity and then placing trades will not only help you break even but also help you make a good amount of money!