Commodity trading is a very lucrative venture for investors who want to make profits off of markets other than stocks and bonds. If you’re planning on becoming a successful commodity trader, read the following tips and learn more.
An Old Profession
Before this system we know as society, the very earliest humans already engaged in trading commodities.
Not all kinds of environment were conducive to the growth of specific products. They had to perform some form of trading in order to ensure that a certain country can gain a profit and the materials that they did not have.
These commodities usually included food and culinary types like spices, vegetables, and livestock. There were also other that included more material commodities, like gold, silver, gems, and other natural stones. After many years, currencies were made.
The history of trading has rolled on the principles of supply and demand.
Open for Everyone
Everybody can get started with commodity trading, although it requires a certain level and commodity market background before diving deeper.
The good thing is that you don’t really need extensive schooling. All you need to do is to understand how the industry works and how professionals make money.
The best place to start is to understand the pros and con. Quite obviously, there is the risk of losing huge money. When you are trading commodities, part of your capital will inevitably go to losses and it might take some time before you can gain some profits.
The Types of Commodities
Commodities can be classified into two categories, which are hard and soft.
Hard commodities refer to those natural resources. Meanwhile, soft commodities are agricultural goods and livestock.
Hard commodities are more suited for the longer term. An example of this is oil. If the market can’t export or trade oil, then it will fail, because oil commodity is exchanged globally. Hard commodity products are typically the metrics for how much successful country is or not.
Soft commodities, on the other hand, are a little bit more flexible. Examples of these are livestock and agricultural products.
There is always a demand for those products and they are also easy to grow and supply. However, the most major factor that affects soft commodities is the weather.
Commodity Trading Standards
Commodities can be traded without inspection as long as standards are being followed. The trader must obey these standards to successfully engage in trading commodities.
This is mainly found in food since there are safety standards that are set by the government to make sure that quality products and healthy livestock are being traded.
Commodities Futures
You can also participate in trading commodities by investing in commodities futures, which is basically a contract to buy or sell commodities for a specific price in the future. As a matter of fact, you can invest in commodities futures on just about any commodities.
Investors prefer to use futures because it helps with the budgeting process. Meanwhile, others focus on the profit made by the changes in the price of the commodity over time.
