Savvy investors can make good profit from commodity trading because prices usually imitate the performance of the broader economy. Even with assured real inflation adjusted values, commodity prices may fluctuate due to short term changes in demand and supply. Due to these predicaments, it is important to study and review the market and know when to make a move. Day traders can take advantage of the short-term market changes to make better trades and profit.
According to Investopedia, day trading involves buying, holding and selling. The holding period varies from a few seconds to hours and entire trading day. Commodities are usually sold in raw form, be they metals, energy, agricultural produce or livestock. The most valued metals include gold, silver, copper and platinum. Under energy, you will find commodities like natural gas and crude oil. Popular agricultural commodities include cocoa, wheat, corn and coffee.
How to start trading in commodities
Trading in commodities is generally simple as trade involves predicting the direction of commodity prices before making a move. Trading works on both short- and long-term investment decisions. To make sense out of the market, you need to do thorough research and master core investment techniques used by experts. Doron Rosianu is a renowned commodities trader and founder of Pitbull Trader. He sees a huge potential in the market thanks to tools like futures.
The tool allows traders to make huge investments and returns on minimal investments. For beginners looking to enter the market, Doron advises them to find reputable futures brokers. The selected broker should be well-reviewed; charge competitive commissions on trades and offer exceptional customer service. The list of reputable commodities brokers, according to Doron Rosianu’s assessment includes names like Interactive Brokers, Trade Station, NinjaTrader.and GSS.
Once the broker gives you the consent, you need to train your sights on understanding and reviewing the intricacies of trading. Taking time to undergo training is critical before risking any money. Training may involve the use of a trading simulator to help you see how the real market plays out. One thing you must observe when trading is avoiding the all too common misstep of overtrading. Note, entering into too many trades, too quickly may expose you to unexpected risks.
Practical guide to commodities trading
Commodity trading is slightly unique compared to the financial instrument-based markets. Because of these differences, trading in commodities uses its own investment technology and target market. According to BullMarketz, the most common commodity trading techniques include:
• Futures or Forwards – Futures is among the most widely used commodity trading techniques. By definition, futures are basically a binding contract between the seller and a buyer. The agreement obliges the buyer to buy a given commodity at an agreed future time and offer the same for sale at a preordained price. Any commodity, including highly liquid commodities like gold and crude oil can be sold using this strategy. Through day trading, investors can use the futures market to diversify their portfolio away from the traditional index or equity trading.
• Contracts for Difference (CFDs) – this is a speculative commodity trading and investment tool or contract. The contract is usually not directly related to the traded commodity or asset, but the underlying asset. The method is preferred by many commodities traders because it promises higher returns due to inbuilt leveraging system. Although traders can make huge profits from small investments, the leverage in CFDs increases with risk.
• Exchange Traded Funds (ETFs) – traders interested in trading commodities can also do so using ETFs. This trading technique analyzes the prices of both single and bulk products. The analysis and trading are based on the agreements the parties have in the futures market. Day traders can score big with ETFs when trading precious metals like gold.
Conclusion
The increasingly popular commodity trading is highly diverse, intense and stacked with a huge investment leverage that is drawing the interest of many investors. Since the decision to invest is personal, it is important to have the necessary training and familiarity with basic trading tools before entering the market. A reliable and regulated broker can help you learn the ropes quickly to ensure more sustained trades and long-term profitability on diverse commodities trading portfolios.
Some of the strategies used by brokers to keep investors informed include delivery of up-to-date information on trading instruments and market news alerts. In case of the latter, the broker can provide alerts should the market turn “positive” for day traders. Doron Rosianu is a specialist in Day Trading. He boasts over 20 years of experience in commodities trading. Doron uses a powerful educational platform called Pitbull Trader to teach and reach out to prospects looking to enter the highly dynamic commodities market.