Get a broker. Finding a commodities broker is easy these days. Just type commodity trading into Google, and hundreds of links will appear with people wanting to take your money. However, you need to be careful as speed of execution while trading can be very important, so you will want to go with established brokers. Two good ones are TradeStation and InteractiveBrokers.com. Both of these companies are well-established and have been in business for decades.
Commodities are natural resources such as petroleum, copper, gold, cattle, soybeans, corn and pork bellies. Commodities can be traded and sold on an exchange just as a stock can be.
Buy a commodity. Once you've opened up a brokerage account, there are a few ways in which you can trade a commodity. You can buy a futures contract, you can purchase an options contract, or you can buy what is known as an exchange-traded fund, which is like buying a stock that deals in commodities. For example, the ticker symbol for a natural gas ETF is UNG; for oil, it is USO.
Look at seasonal tendencies. Commodities, in particular, follow seasonal patterns. For instance, oil has a tendency to rise during April and May as people prepare for the summer driving season. Gold also has a tendency to rise starting in September as people start shopping for Christmas presents. These patterns also work with things such as pork bellies and soybeans because there are particular times of the year for slaughters and harvests, which affect the commodity prices. You can find out more in the book, "Commodity Trader's Almanac" by Jeffrey A. Hirsch and John L. Person.
Look at the smart money. Smart money refers to the big players such as mutual funds, hedge funds and large institutions. You can follow the smart money by using the charts at www.Theuptrend.com. When the smart money is buying, you want to be buying as the chances the commodity will move up are greater than when it is not.
Use money management. A good rule to have is to only risk 1 to 2 percent per trade. Always use a stop loss, which is an automated trade that will take you out of the market if the commodity has lost a predetermined amount of money.
Control your emotions. Being in a business where you can make or lose thousands of dollars in minutes is very emotional. If you want to trade commodities, you will need to learn to control your emotions.
Tips & Warnings
- This is a difficult game, and it can be a risky. Do not start off using real money.
- Practice for several months until you are consistent.
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