Commodities are all of those things that people use every day, such as fuel and food and everything in between. So, when you think about it, it’s actually quite wise to start trading commodities, as they’re always in demand and always a necessity. If you want a piece of the commodity trading pie, though, follow the five golden rules below to make sure you do it right and so you can make the most money with the least effort.
Get Help from a Commodity Broker
Those who are complete beginners in the world of commodity trading should locate a commodity broker who has been trading for over a decade at a minimum. This experience, combined with being regulated and offering CFD (contract for difference) trading, will help ensure your success. This is because you’ll enter into a contract that states both of you will be exchanging the cash difference between the closing and opening prices of commodities.
Diversify Your Trades
Diversifying your trades is important no matter what type of trading market you’re working with, as it’s a means by which you can cut losses and make as much money as possible. It basically boils down to reducing risk by investing in different types of commodities rather than throwing all of your money into one commodity at a time. For example, you might trade a mix of energy solutions, agricultural goods, and precious metals to optimise the opportunities to earn profits and prevent yourself from overtrading.
Speaking of overtrading, this term refers to risking too much of your money on a single trade. So, as an example, if you’re planning on trading an account that contains a total of £100,000, you should work on limiting losses to only 2 per cent of that amount. In this example, you want to keep your losses to £2,000. In this way, if you’re wrong on a few of your trades, you can still have enough money left over to continue trading and hopefully make that money back in the long run.
Look for Trends
Looking for and following trends will also help ensure your success as a commodities trader. If you’re analysing a market and you see it moving in a certain direction, you should act wisely by following the trend unless you have a very good reason not to. Always be on the lookout for trends so you can be aware of what commodities are on an upward swing and which ones are moving downward.
Keep an Eye on Markets
In addition to looking at trends, you also need to analyse markets, as commodity rates are determined by a variety of factors that include government actions, weather, and supply and demand. Stay on top of the news and check price charts daily.
If you keep the five rules above in mind, you’ll be able to enter the commodities trading market with greater confidence and achieve better results. The more accustomed to the process you become, the more money you’ll make.