Commodity market is one of the largest and most traded especially in times of inflation or during economic uncertainties. Commodities trader turn to commodities as a way of diversifying their investment portfolio or when in need of hedging against a particular event risk. Check out all the insights needed to make a carrier out of commodities trading below.
What Is A Commodity Market?
A commodity market is a physical or virtual marketplace where traders congregate to buy and sell raw products used in the economic sector. In contrast to the equity market, commodity traders buy and sell commodities instead of company shares. There are about 50 major commodity markets split into two: soft commodities market and hard commodities market.
Agricultural commodities such as cocoa, coffee, corn, cotton and sugar fall under soft commodities as they are derived from farming activities. Hard commodities, on the other hand, are natural resources most of which are mined or extracted such as oil and gold
Commodity prices, just like other financial assets, are affected by forces of supply and demand in the agriculture business. In times of bumper harvests, there is usually an oversupply of agricultural commodities something that goes a long way in affecting prices. Conversely, in times of disasters such as hurricanes and drought such commodities’ prices tend to tick higher.
Commodity prices are also affected by political and economic events. For instance, in times of conflict precious metals such as gold tend to command a fortune as they are considered a safe haven. In times of robust economic development, metal prices also tend to edge higher given the influx in demand.
How To Trade Commodity Market
Internet connection has simplified a great deal in the process of trading the multi-billion commodity market. Unlike in the past people no longer have to call a commodity broker to be able to place an order on a given commodity.
Opening An Account With A Reputable
The first step to placing an online trade in the commodities market entails opening an account with a reputable brokerage firm. Royalcapitalpro.com is one such firm that offers a versatile trading platform ideal for metal trading as well as oil trading among other commodities.
A good broker, in this case, is one that offers good service as well as low commission rates when placing trades on commodities through online trading platforms. If new into the commodity trading business then it would be wise to seek the services of commodities experts.
You need a platform that provides all the needed educational materials needed to perfect commodity trading skills. The platform should also come with all the necessary tools that one can advantage of to polish skills needed to make a career out of commodity trading.
Understand The Type Of Commodity Contracts
Commodity traders place positions on commodities in several ways. Expert online traders use Futures contracts to buy and hold commodities for a set amount of time. While Future contracts can be a little bit complicated, online trader can also purchase commodity stocks instead of actual commodities to gain some exposure. In this case, one can purchase a stock of say a silver or gold company.
There are Mutual Funds as well as Exchange Traded Funds that specialize in commodities that one can invest in as a way of profiting on say agricultural commodities metal or oil commodity. You can find water mutual funds to invest in too.
Understand The Risks Involved
Unlike the stock market or other markets, commodities trading can pose significant risks given that most commodities are traded on margin. While margin magnifies profits, things can get out of hand as losses are usually magnified on margin.
Benefits Of Commodity Trading
Commodity market is one of the most liquid markets, which allows traders to enter and exit positions be it on oil trading, metal trading, coffee trading or corn trading with ease. Ability to trade on margin is another advantage that allows online traders to enter positions at less capital.
The fact that commodities markets experience high price swings means one can generate high returns when on the right side of a trade. Expert online traders take advantage of this prices swings to make gains. Commodities also tend to maintain their true value in times of inflation, unlike currencies and stocks that are usually affected.
Online commodity trading provides an easy way of kick-start an investment career given the balanced forces of demand and supply in the marketplace. As an online trader, carrying out deep analysis on things like gold, oil, coffee or corn, prior to placing trades, is the only way one can be assured of profits when it comes to commodity trading.