How to Day Trade Commodities

Commodities are traded on worldwide and national exchanges.

There are many different types of investments, but the most common are stocks and bonds. An alternative to investing in stocks and bonds is commodities. Commodities are not determined by the name of the company selling them and they are usually traded all over the world as the basis for food, construction and general development. Examples of commodities include currency, corn, oil and cotton. There are several different trading styles used by day traders to trade commodities.

Instructions

1. Obtain the right amount of capital. In order to trade commodities on a daily basis, you will need at least $10,000 in capital.

2. Try the arbitrage trading style. This trading style can take anywhere from a few minutes to a few days, and can make anywhere from 10 to 30 pips per trade. A pip is the lowest unit of measurement for commodities. Arbitrage traders need real-time pricing data as they are looking for opportunities to take advantage of pricing. For instance, one commodity may be trading higher in one trading platform than another. Additionally, if the commodity is traded in terms of another commodity, there may be anomalies. For instance, if you notice that the Euro/Great British Pound currency cross is trading higher, it should compared to the Euro/U.S. Dollar currency cross you will want to purchase the Euro/Great British Pound cross before the anomaly is traded out (disappears) from the market.

3. Use scalping to trade in commodities. Scalpers can make between five to 20 pips per trade. Scalpers also need real-time trading data as they make their money from the fast execution of trades. These trades make small profits each day which result in larger profits over a period of time. Scalpers look for prices to go up or down in one to 15 minute intervals. When the price goes up even by a small amount, scalpers take profit. It is not usual for scalpers to make 30 to 50 trades a day.

4. Use technical analysis to trade commodities. Technical traders can make anywhere from 10 to 100 pips before making a profit. Technical traders are characterized by by finding historical trends in charts and graphs. Common tools used by technical traders are moving averages, stochastics, Fibonacci and the Elliott wave theory.

5. Understand swing trading. This trading style can make anywhere from 80 to 250 pips per trade before taking profit and the trading horizon can last from a few hours to a few days. Swing traders try to capitalize from short term trends/swings in prices. The challenge is determining the best time to enter the trade and get out of the trade.

References

• Trade Commodites: Styles Of Trading
• RB Trading: Answers to Frequently Asked Questions About Trading Commodities