While interest in trading commodities has only grown in recent years, this is one of the earliest asset classes. The first recognized commodity trading exchange in the US was the Chicago Board of Trade (CBOT), created in 1848. Currently, there are at least 50 popular commodity markets in the world. They play the crucial role of coordinating investment trading of about 100 commodities.
Commodity trading is possible in several ways, including investment in a futures contract. This article will review how to trade in commodities so you can learn how to trade commodities like a pro.
What are Commodities?
Before learning how to trade commodities, it is important to start with the source or basics. Commodities are items that are usually applied as inputs for the production of secondary items. They often come from independent producers, and in bulk. Typically, commodities fall under energy, metals, agriculture, and livestock categories.
Commodity prices are dependent on the forces of supply and demand in the marketplace. These forces may change depending on political situations, weather conditions, and so on. For instance, if drought occurred in the country, the price of barley would rise.
Learn About Commodity Trends
The commodity trading market is extremely dynamic these days owing to gas shortages across the world and industrial demand after the pandemic lockdowns. Technological advancements have also triggered the continual evolution of commodity trading. With the energy transition, new commodities such as renewables have emerged.
Here are the Steps to Trade Commodities
Now that you have decided to trade in commodities, choose a suitable trading platform. The best platform is user-friendly, offers excellent customer support, and charges affordable fees.
Once you have identified a platform, go ahead and pick a commodity asset. Usually, the platform contains a variety of trading instruments. The best commodities for trading have high stability and liquidity.
Next, learn more about the commodity you just picked. If you want to join the league of pro traders, you want to have sufficient information about the commodity. An expert trader seeks to understand the forces driving the prices. It may be recommendable to use the services of a commodity advisor if the market is still complex for you.
Now you are ready to open trades. Word of advice: Use a demo account before committing real money. You will have the chance to learn the features of the trading system and the fundamentals of trading. Only use real money once the system has become profitable.
Open positions are crucial. Be on the lookout for them. You want to keep off early exits and delayed exits for profitable trades and unprofitable trades respectively.
Superior Trading Results – Expert Tips
Everyone wants to be an expert in trading commodities, but do they apply the necessary methods?
You can get better trading results if you invest your time and other resources into analyzing the commodity market. Analysis skills are so essential in commodity trading. It doesn’t even have to be complicated. It might be as simple as looking at the effects of economic news. For instance, whenever OPEC meets and makes announcements, oil prices immediately change.
Then you need to manage your risks more. Price movement speculation is a matter of capital risk. Leverage application is equally risky. That’s why you need to consider the following for risk management:
· Use stop-loss S/L orders
· Apply trailing stops
· Set appropriate risk: reward ratio. From experience, the best ratio is 1:3
These and many more tips are covered in comprehensive guides on how to trade commodities.
Final Thoughts
If you have a high appetite for risk and you desire to be an advanced investor, then commodity trading suits you. To become a successful commodity trader, you must first be armed with all the requisite information. On top of that, you need to practice the best trading techniques. Search for valuable information online as you pursue the goal of becoming an expert commodity trader, and consider using brokerage services if you are a beginner.
