Traders who are seeking a new venture for investing, Commodity trading can be a great option. It also helps in diversifying your portfolio and provides great profit opportunities from different regions of the economy.
However, all financial markets are remunerative. But along with bonds, stocks and currencies, commodities can also be profitable. Commodity trading is also gaining its popularity and has its own benefits and can offer good returns to investors.
What is Commodity Trading?
Commodity trading means trading the goods which are produced like gold, silver, wheat, soybeans, etc. These commodities are majorly classified into four groups such as agricultural, metals, energies, meats and livestock.
Same like stocks, these commodities are traded in the exchange market. They can be traded through different instruments.
Instruments for Commodity Trading
Commodity trading can be executed by through special type of instrument known as commodity future. Commodity future is the contract where traders are agreed to trade the commodity at a predetermined price at the specific date in the future. Traders can make a good profit through this contract if they purchase the correct future contract whose value represents the usual movements of the commodities spot price.
For example, gold might be trading at the price of 50,000 per gram in the commodity market. Now, a trader can buy the futures contract of the gold at a price of 551000 for the date after thirty days from the contract date. This means the buyer will pay the 51000 to buy one gram of gold from the seller after thirty days.
In the meantime, if the market goes up such as gold price rises to 54000 during this period. Then the still investor can buy the gold at 51000 from the seller and can sell that gold in the open market with the current price. According to this futures contract, works and calculations of the profits and loss are done.
Contract Types
This type of contracts is possible only in cash-settled contracts. There are also delivery contracts available where traders have to present the warehouse receipts to execute the trades. When the contract expires, the real delivery of the goods is made as a settlement to the contract.
While placing an order for the futures contract, traders can choose ether they want delivery based or the cash-settled contracts. It’s crucial to keep in mind that the type of contract can change the expiry day of the contract.
How to Trade Commodities?
To start trading commodities, traders should have a trading account with a suitable broker. There are many online brokers available in the market. Choosing the best among them can be tricky. Because everyone has different features and services. The broker should offer a perfect trading platform, trading tools and reasonable commissions. Above all broker must be legit. As there many scam brokers available in the market.
ROinvesting is the best online broker. It offers an advanced trading platform and trading tools, it offers all the services essential for commodity trading and allows traders to open an account with a minimum balance of $250. Brokerage fees are relatively less compared to other brokers in the industry. Most important it is regulated and authorised by the top financial authority CySEC under the licence no 269/15. Thus it is the safest venture for the investors for their trading.
Once you open the account you will have deposit the funds and start your trading. You get all the prices of the commodities on the trading platform itself offered by the broker. Just you have to select the commodity and set the quantity.
After opening the position the traders should monitor their position regularly and they can square off the position when they want to book the profit.
Conclusion:
Commodity trading is the best trading market for traders. Just they have to understand the dynamics of the market and different trading strategies of the commodity market. They should have the correct knowledge of the underlying commodity in which they are willing to trade so that they can execute their commodity trading successfully. To know more about the commodity trading strategies you can read our article.
