Commodities are highly popular assets in the trading world, as they offer the potential to make significant profits. However, the world of commodities can be volatile, so it’s important to be prepared with a number of strategies and approaches before you make a start. This article will provide a number of tips for those interested in trading commodities.
Don’t Be Too Tempted by Risk
Trading is exciting. If you’re lucky enough to start seeing good returns quickly, it can be easy to give in to temptation and take bigger and more dramatic risks each time. However, the higher the stakes become, the more you may lose if you take a wrong step. Be disciplined from the start and set yourself some ground rules. Don’t fund your account to an unsustainable level when you begin – just start with lower amounts and build yourself up gradually. Make the most of simulations – such as paper trading – and training opportunities instead of diving in headfirst with no experience. You’ll soon get comfortable with the process – which will make success far more likely.
Stay on Top of Trends
When a certain commodity is swiftly gaining value, you’ve likely got a trend on your hands. Following trends is one of the most sensible ways to determine where to invest. The best techniques include investing in a commodity just as its value peaks above previous highs – as this suggests that it could climb still further – or doing so during a short-term decline in value following a strong climb, as the chances are that the trajectory will pick up again. Try to consider the reasons behind a certain commodity’s popularity before investing, as there is always the chance that the current trend is a flash in the pan and may end up losing you money. You can also use data on open interest and volume to determine whether a trend is viable.
Learn from Others
If you are lucky enough to know someone who trades commodities, it’s definitely worth picking their brain before you take any decisive action yourself. While they may be reluctant to let you in on all of their secrets, they may be able to demonstrate particular attitudes and explain a few helpful techniques that will get you started. Checking in regularly with friendly traders in your circle can help you to determine whether or not you’re on the right track, and may enable you to develop your methods more successfully. Remember, however, that everyone makes mistakes. Don’t feel that you must always follow their advice to the letter, as they may be unknowingly leading you towards failure. Instead, listen to the information they give you then do your own research and make an informed decision based upon your findings.
Study the Most Popular Techniques
The approaches of those who trade commodities usually fall into three distinct categories: fundamental, breakout and range trading. Fundamental trading involves researching the environmental or societal factors that affect the value of a commodity and using this data to remain informed of the best times to invest. This approach is highly involved and takes a lot of work and patience but, once patterns are found, traders who do this may enjoy long-term success. Breakout trading involves the following of consumer trends. Those who do so try to invest in a commodity before its popularity takes off significantly, then sell when it reaches the highest possible value. It is a more short-term strategy, as many commodities see only a brief time in the spotlight, but it can prove extremely lucrative.
Range trading involves developing a strong knowledge of the supply and demand levels of particular commodities. The range to which this term refers is the difference between the estimated value of a commodity when demand – and therefore prices – are lower, compared to when demand has reached its peak. Traders buy when the commodity’s value is at the bottom of this range and sell just as it reaches the top. This technique is one of the most resilient, as it can be used even when there are no particular trends affecting the commodities in which you most commonly trade.
Plan Your Approach
The most successful traders are those who have a clear game plan. We highly recommend that you do your research, determine a technique or specialism and stick to it unless there is a very good reason to change tack. For example, you might choose to never invest above a certain amount at any one time – or you may set yourself a rule to never delve into the trading of certain commodities due to the risk factors involved.
Be disciplined and always make sure that the risks you take are highly calculated. Futures contracts are a great resource that can help to guard against market volatility. They are agreements confirming that one party will buy a certain commodity from another party at a set time in the future, for a set price. This makes matters a little more predictable for traders. The contracts themselves can also be sold or traded, as they gain value during every price increase affecting the commodities to which they refer.
Choose the Right Platform or Broker
Online commodity trading platforms, like this site, exist to make transactions easier and more streamlined for all traders. However, it’s important to choose your tools carefully right from the start. First, you need to be sure that the platform you use is as secure as possible. Data breaches can cost significant sums of money and reveal highly sensitive information. You should also take into account the history of the platform or brokerage.
If it has evolved over a number of years, it’s more likely to be trustworthy and free from teething problems and gaps in its security or legal documentation. It’s also important to check its adherence to international trading legislation and the standard of customer support it can offer you. Its capacity to support cross-border trading should also be considered, as the ability to easily access markets in other territories can be extremely valuable. Finally, it’s worth checking how quickly you can withdraw or deposit funds. This factor can affect how quickly you can take advantage of new opportunities – and how easily you can recover your money if things take a turn for the worst.