Commodity trading describes the commodity markets rather than the commodity investment as the name itself implies, the reason being that commodities do not increase rapidly over time like stocks do and therefore majority of the people take a trading approach with commodities to get profit. So, it is sensible to have a buy and hold strategy for stocks and a trading strategy for commodities.
The commodities have high leverage and instead of shares they trade in contracts. It is possible to buy and sell positions when the market is open and there is no need to take actual delivery of the stock physically.
There are three types in the commodity market:
Commercials: Commercials form the most of the trading in commodity markets where in the things involved are the production, processing or merchandising of a commodity.
Large speculators: Large speculators are a group of investors who aggregate their money together to minimize the risk and increase the gain. Large speculators have money managers who assist in investment decision for the investors like mutual funds in the market.
Small speculators: Small speculators are individual commodity traders who trade through a commodity broker or on their own accounts.
Both small and large speculators have the ability to shake up the commodity market.
To trade commodities, it is essential to have a basic knowledge about the futures contract, specifications for each commodity and trading strategies. Commodity traders usually follow two types of trading strategies, trend following approach or a range trading approach.
Trend following: Prices that are in the trend are probable to continue in that direction and the odds are in favor of the trader. Trend following strategies are dependent on having some big movers each year but a close watch should be kept on them.
Range trading: Under a ranger trading strategy, selling the market when it is at the top of its range and buying the market when it gets to the bottom of its range is followed which is well suited for a long period of time. In this type, one of the markets would break out of its range and have a big move where the traders face the risk of losing. They may hold on to a position thinking that the market might gain its position soon or make things worse.
But whatever be the trading strategies, the basic things needed are discipline and money management. No matter how the trade looks, it is advisable not to take too much of risk.
To get above average returns in the long run, a commodity trading strategy is safer instead of buy and hold strategies with commodities. If there is no sound-trading plan, a promising outcome is not feasible.
Online Commodity Futures Trading
All trades, whether it’s done online or directly, involve both risks and profit making opportunities. Online futures trading are also not different. A successful online futures trader is one who has a brain to find and utilize the profit making opportunities. Following the basics strictly can provide you steady, but usually low, profits; and following your instincts and taking calculated risks can result in greater profits. This article is created to help futures traders to build healthy instincts based on successful futures trading strategies.
The basic requirement for beginners in online futures trading is a futures trading plan, created according to his or her financial background, trading style – whether short term trading or long term investment, trading ability etc. The capital you should have depends solely on your trading nature. If you take futures trading as a part-time job, then investing lower amounts for small profits can be the right plan. But if you want to make online futures trading as your main profession, then you should invest much more.
An online trader must be clear with the amount he/she can spend on the market. Spending lesser amounts will minimize the change of profit as will as may restrict him/her from utilizing proper risk management practices. Spending higher amounts can result in great losses in this volatile market. We recommend that what ever money you spend initially must not affect your present living standards.
A successful online futures trading plan will have “4 must follow" principles. They are
1.Trading with the trend
2.Minimizing the losses
3.Letting the profit run
4.Managing the risk
Trading with the trend is a complex principle as it depends on the trading style of futures trader. A day trader or swing trader trading futures have to follow hourly trends as he trade according to minute changes in prices. On the other hand a long term investor or position trader trading futures have to follow weekly, monthly or even yearly trends. The second principle “minimizing the loss" is the most simple to understand and most hard to practice. The principle simply means quitting the trade when market is against you. As no one want to quit a trade in loss, it is the toughest instinct to build. That is why one who ready to afford losses will certainly be called a good trader.
The third principle, letting the profit run, is perhaps the only instinct which wants not so much training. No one trading futures will want to quite a trade providing great profits. But remember to quit a trade as soon as you feel a negative trend. The fourth principle, managing the risk, is most important to beginners. It is an essential practice for preserving your capital for future profits. Keeping hands off from highly fluctuating markets and investing in mini contracts, paying attention to surprise reports, diversifying trading fields are some of the practices involved.
In online futures trading, it is possible to overcome losses of many days with profit of one day. Always monitor national and international trends, experiment a little bit, select a good brokerage firm offering you most supports, select a trading software suitable to your needs, and trade contracts from selected fields only.
Both Lesley Lyon & Praveen Ortec are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
