Dealing with commodities is not something new. It has been an integral part of human life and can be dated back even further than trading stocks and bonds. From seashells to spices- Ancient civilizations highly depended on trading a wide array of commodities for daily survival. These turned the wheels of commerce for today’s commodities trading.
Commodities- whether that is food, metals or any other object, is an important part of everyday life. Someone who drives a car to work every day will be significantly impacted by the reduction or increase in petrol prices. Similarly, the impact of drought on say, the supply of soybean, may have an influence on the composition of your next meal. Therefore, commodities- however small or large can be an important way to diversify and serves as a portfolio which is beyond the traditional securities.
Although in the past, many investors did not allocate to commodities due to the significant amount of time, money and expertise that went into investing, nowadays the trend has changed; there are several routes and ways today to the commodity markets, some of which also facilitate the participation of those who aren’t even professional traders.
Commodity markets have no doubt, a tremendous impact on the economy as well as the life of the people but it is also very typically subject to crashes and rallies and therefore is a lot more susceptible to speculation than the stock markets. Here are a few tips and tricks that an investor could use to take benefit of the commodity market and raise their capital:
1. Know the Market: Before stepping into the market, an investor should be ready to learn about the ways of the market. Commodity futures, unlike stock markets, come with an expiry period and hence an investor should fully understand the basics and fundamentals of a contract or they might have a great risk of losing their initial capital as well.
2. Diversifying the capital: It is very important to analyze the proportion of rewards and risks involved before diving into it. One must think closely about the amount of risk he can take based on the capital available with him while involving in commodity futures. Also, it is extremely important that one does not completely invest all his capital on a single commodity. It is best to allocate the capital in multiple independent assets, therefore decreasing the effect of a loss in a wrong trade. In addition to this, while facing an uncertain or unclear scenario, the ideal strategy one should use is to remain patient, until everything is clear and the entire situation comes to light. Executing a bad decision or taking a decision in a hurry might result to be something worse than it would have otherwise been.
3. Maintaining stop loss: Getting involved with trades in commodity futures implies that there will be a certain amount of risk involved in it. But this is not something one has to worry about if the right decisions and choices are made. It is necessary to protect ourselves and that is when hedging strategies come into handy. One of the main reasons why traders stop trading is because they suffer huge losses as fail to include stop loss as a part of their trading strategy. Therefore, maintaining an appropriate stop loss helps minimizing loss and maximizing your profits.
4. Attention, attention!: Trading is not that easy a job. A trader has his own systems of improving profits and keeping minimum losses. But how does he do this? He keeps a clear eye on the market! Keep constant touch with the market will teach you the tricks of the job over the course of time. Planning ahead and being cautious of the common mistakes so that you gain more profits are some tiny examples that you can keep an eye on to get better at what you do.
5. Play it slow: Traders with usually minimum experience in the field rush into the trade and lose. And that is why it is important to start slow. One should always trail the prices by constantly revising the stop losses and in turn grab the maximum profits out of such trades. New traders should always step in the market with small capital and never buy in the rumors and invest their entire capital in a single commodity hoping that you will gain profits easily and quickly. Take it slow and steady. After all, in the end, the tortoise won the race!
These are just a few tips and tricks that might help you in your trade, but if you are really interested in learning the art of commodity training, then we might have just the right place for you! Train2Trade offers an exclusive and detailed commodity trading classes in Mumbai to create awareness about the benefits of commodity trading and currency markets. Join today!