Commodities Trading How To – What is commodity trading?
Let’s do first with the term “trading”. By the term, we mean the action of participating in a trade. In other words, this is the action of exchanging one item with another. Thus, when we tackle the concept of commodity trading, we are dealing with some commodities and exchanging them with other items.
In the present setup of global commodity trading, the phrase “other items” refers to money. Somebody’s going to buy commodities and another is going to sell them. Once you are in trading commodities, you will be the buyer and you are going to buy from someone or some kind of financial entity.
You are going to make an investment in a commodity and hope your invested money will come back to you with a higher value. The increase in value can only happen if the said commodity increases in price over a predetermined period of time. If the commodity decreases in value, you will lose a part or even all of your invested money.
For people who invest in stocks, they hope that the stocks that they invest in will increase in value. For currency traders, they expect that the currency they invest in will increase in value against another currency. This is how these systems work.
Commodity trading is seen to be getting more popular. The simplest reason that we can find for this trend is that it is easier to do compared to other forms of trading.
There are no deep analyses to do like one does in stock trading. There are usually no minute-by-minute checks required, although some commodities become volatile in price during unusual events like catastrophic events or major political events happening locally or worldwide. But besides those times, a commodity trader doesn’t have to worry about quick price changes in the market.
As for agricultural commodity, which is one of the various options that you can use in commodity trading, prices are dependent on weather conditions, and because weather doesn’t have that unanticipated effects most of the time, you can usually easily predict what it’s going to be in the next months or so. There’ll be no such surprises attending unlike the other forms of trading, which is very advantageous to commodity traders.
What are the options for commodity trading? There are many options you can choose from. You can trade using only one or many commodities at the same time. They are actually raw materials used in making products. Examples of raw materials are oil, silver and gold.
Here’s a 4-category list for your reference:
- Metals – gold, silver, platinum, etc.
- Energy – natural gas, crude, etc.
- Livestock and meat – lean hogs, live cattle, pork bellies, etc.
- Agricultural – this includes coffee, rice, wheat, corn, cocoa, etc.
Other ways of categorization are employed. An example is a two-division categorization:
- Commodities taken from under the earth – this includes oil and metal
- Commodities produced (above the earth) – this includes corn, coffee, wheat, etc.
Now people are asking: Is commodity trading safe? This question has been answered in the affirmative several times. In particular, an Indian expert, with an indirect response to the question, said that it is the most viable alternative to other trading forms. According to her:
- Someone who is looking into diversifying his/her portfolio beyond real estate, bonds and shares should consider commodities. It is the best option.
- Commodities have a great potential to become a separate asset class. Investors and speculators should look into that possibility. The potential is immense.
- Retail investors, who invest for their personal accounts, must consider commodities. They may find this field unfathomable. But really it is easy to understand. If they have a good grasp of the concept of supply and demand, then it must be easy for them to understand.
There is also an understanding that when stock prices go up, commodity prices go down. Stock market players are therefore encouraged to incorporate commodities in their portfolio. When stock prices start falling, they can find a safe haven in their commodity investments and continue investing. Wise farmers grow different crops.
When to trade commodities
For everyone – long-time traders and beginners who are just taking the first step in their trading life – there’s really no designated time for commodity trading. Every day is a commodity trading day. It’s because commodities are sold and bought EVERYDAY. Even in those times when commodities have to take the beatings because of unexpected, undesirable events, the raw materials for making products continue to be bought and sold – and NOT A DAY IS AN EXCEPTION.
Should you invest in gold when the price is low? Definitely yes! It’s because that commodity is going to pick up somewhere near the future. Jewelry using gold will not stop using it. Currencies will forever be in existent and many of them use gold.
Same for wheat! People will not stop eating bread and continue to use wheat products for other purposes.
So, when should you do trading commodities? It is NOW.
You need a guide to walk you through the process. First, visit Trading Toplist.com (tradingtoplists.com). We have lists of people and entities called brokers for trading commodities.
Look over those listings. These lists contain businesses operating in the US, Europe and elsewhere. Check the commodities trading company list based on your location and language. If you’re a European, you can go for a European broker. If you’re an African, feel free to choose an African broker. But no one is limited based on descent or area of location. An African may opt for a broker whose base of operation is in the US.
Now these commodities trading firms are not one and the same in terms of how they operate. They have different approaches to trading and different businesses linkages. Know how each operates and how they can benefit you.
Some of the brokers in the lists offer one or all of the following:
- Video guides
- Demo accounts
Trading Toplist.com’s goal is to lead traders to the right partners who can best help them. When you are done choosing your broker, do confer with Trading Toplist regarding your choice. We will show you the pros and cons of your choice.
Trading Commodity Explained
Here we put more details on how commodity trading works and how you can start smoothly. Generally, there are three main steps:
- Get Yourself Ready
- Identify Your Commodity
- Diversify Your Portfolio
Get Yourself Ready
Determine the amount of money you can invest:
Know how much money you are willing to invest. Remember that there are risks involved and mistakes can turn into large losses. On the other hand, commodities are aid to be able to reduce overall risks for people with diversified portfolio. Know how much you are willing to risk through commodity trading.
Open an account:
After choosing your broker, you can now open an account with them. It is the broker that will allow you to deposit your money that they will invest in securities. Commodity is a type of “securities”.
Take note that this is not the same with investing in physical commodities. For instance, you bought gold and store it in your own property. This investment did not enter the securities market at all. But this type is not realistic for many investors, as managing physical commodities is usually difficult for them. This can become more cumbersome when it comes to perishable goods such as wheat or oil. There are also shipping and storage costs that go along with physical investment.
Deposit your money:
Be careful with your first deposit. There’s really no need to put in a large sum of money at first, because you are still unfamiliar with this market. The better way is to build your position over time as this can lower the risk.
Determine Your Commodity
After depositing money into the account, it’s time to find someone who can help you determine the right commodity to invest. Understanding the commodities market is a herculean task that requires expertise and knowledge. Here are some ways you can invest in the commodities market:
- Physical commodities – already explained above
- Commodity futures – Consider the futures market. Traditionally, commodities have been traded in these markets. This allows you to buy or sell commodities for a price at a date in the future. Know that commodity futures investments are very risky.
- Commodity-related stocks – You may consider this if you want to avoid high risks involved in futures trading. For example, instead of investing on wheat in the futures market, you may just invest in companies that trade wheat.
- Exchange traded funds (ETFs) – These are funds that have shares trading like stocks. If you want to have a diversified portfolio, this is one way to do it. This will also allow you to invest directly in commodities and deal with the price fluctuations without having a futures contract.
Diversify Your Portfolio
This is for people who have already been trading for quite a time now. The first advice is to keep your asset allocations balanced. It is too risky for your finances to put all your money in one investment. Diversify. Put your money in different commodities. Consider commodity-related investments as well.
However, there is a limit set for commodity trading. The advice is to put only 5-10% of your money into commodity investments.
Periodic rebalancing of your portfolio is also advised. Do this at least twice a year. At each point, determine which of your shares/stocks have gained money and which ones are making you lose money. Buy and sell accordingly.
It’s easy to start:
Starting to trade is a very easy process. Just scroll up this page and check the list. You may research on your own about the broker you think will suit your preferences.
Brokers in this list have been reviewed carefully by our editorial team. You can easily check what each broker requires like minimum deposits, identification, personal accounts, etc.
Check for additional services that these brokers provide. Some brokers offer 24/7 support, while others offer platforms in different languages, tutorials, guides and demo accounts. These features are considered helpful to be a successful commodities trader.
It is our mission to help beginners make the right choice. Our brokers are trustworthy and licensed. We have checked them manually. If they have not been investigated carefully, they will not land in this list and they have no business staying in our site.
If you want to trade right away, we allow that. But if you’re one who needs to check details carefully, we will help you do that. We have available reviews on these brokers. You can check current and past clients to get more details. Check our separate pages featuring reviews of our brokers.
Commodities Trading Online – Best Brokers for Commodity Trading
Don’t get anything wrong. There’s no competition among the brokers in the list. They are equally good, but only offering different services and offering different options. They are different in their own way. How you perceive each depends on your needs. You might see one broker offering better options. That’s because of the specific needs that you have.
Some brokers have better offerings for newcomers – things like demo accounts or low deposits. More experienced traders may not be happy with the same trader. So it all depends on your needs. Always give premium importance on your needs, and base on those, choose a broker.
We reiterate that these brokers are licensed. That means you can check with them their certification and eligibility. Check their place of operations as we can’t do this for you. For your convenience, we can give you the countries where they are operating, so they will be easy for you to determine the right agencies to ask your queries to. For example, if we tell you that the broker is operating in the US, you can check with the BBB or other related agencies tasked to verify brokers’ licenses. We will be happy to be of assistance to you every step of the way.
The majority of those included in the list are registered in EU countries. Take note of that. This gives them the full right to operate in all of Europe. It might be necessary then that you check the members of the European Union first and which particular state is in question. It is important that you also check if there are particular provisions that are only applicable to that state. For any inquiries on this matter, you can check with our representatives.
When you are dealing with an EU broker, this is an advantage to you. This is because EU brokers are considered to be some of the safest in the world. Safety is of utmost importance in the European Union. Financial authorities in the EU are connected with one another in the whole union. That’s a good sign for the security of your money and that advantage is applicable for traders residing in other territories like the US, Australia, Middle East, Asia, South America, etc.
Signing up with more than one broker is possible. That is much very welcome. If you have the intention to do so, do check with us, as you might need guidance on that. We will try to see if the combination of brokers you chose will be advantageous to you. You can check our demos for combined-broker approaches. The advantage for this approach is that doing so will be an easy way to find the broker that fulfills your own personal criteria.
Advantages of Commodity Trading
Commodity trading can be your hobby or the main source of your income. Whatever commodity trading ultimately means to you, take note of the following advantages:
- Commodity trading is fun and easy. One thing is that it is so very easy to start trading with. You will have more difficulty start trading if you choose stocks. But it is really up to your choice.
- Starters can get help along the way. This applies to both long-time traders and beginners.
- At this point now, the commodity market has lots of potential to grow more. So get involved right away.
- Demo accounts are free. This means that brokers are happy to accommodate newcomers who are willing to try things by getting demo accounts. This means that you can get any broker to get you to experience trading without paying a single cent in the process. As soon as you feel you are ready to start trading with a regular account, do that quickly. The market is changing very quickly. The decisions you make during a demo are not the same decisions you will make when you operate through a regular account. And it is really exciting making decisions when real money is put on the line. Enjoy.
Check these minor drawbacks:
- If you are into futures, make sure that you understand well the volatile environment of commodities, although generally, they are some of the safest trading investments. We reiterate to remind you that direct investments can be very risky. Again, direct commodity investments are not suitable for inexperienced investors.
- Leverages can magnify not only in gains but also in losses.
How to Become a Commodities Trader – Pieces of Advice
We’ve done the preliminaries on what you can do. Here we want to give some pieces of advice for you to enjoy commodity trading, set your goals, and find fulfillment for yourself and probably, for all your loved ones. In all, this section summarizes what we’ve already presented:
You have many choices for commodity trading. Think of raw materials, these are the ones that you can use to trade commodities. So, think of gold, silver, oil, soybeans, rice, etc. If you feel an affinity to any one of these raw materials, it is probably good to trade with that.
- Commodity trading is good for starters, but then, you should not put all your money into this type of investment one time. The advice is to learn the landscape while trading. If you feel you are already OK, then you can put in more money.
- You need people to guide you, especially if you are a beginner. Check tradingtoplists.com. They have a list of good brokers in the UK and the US who can help you. Check the location of the broker. It might be better to work with someone near or situated in your location.
- There are advantages and disadvantages that go with brokers, but most of them actually play fair in the field. So what you can do is check your needs and get the best match for you. If you have any problem with looking for the best broker, check with us. We will help you find the one that can deliver your needs and help you through your trading and trading commodity ventures.
- Most of what we have in the list are brokers from the European Union. That doesn’t mean any disadvantage to any non-EU traders. Traders from other parts of the world are very much welcome.
When choosing a broker, do make sure that you perform extra checks or background investigation. Tradingtoplists.com welcomes all inquiries related to such matters.