The commodities market includes raw commodities, such as grains, food, meat, energy and metals, that are traded in the commodities exchange through standardized contracts. A commodities trader purchases and sells these items and, similar to a wholesale company, traders are trying to buy low and sell high to reap large profits. Commodities trading can present a unique opportunity to investors for a high rate of return on their investment because of the high financial leverage inherent in commodities trading.
Educate yourself about the commodities market by reading as many books about the market as you can and familiarizing yourself with commodities trading techniques and strategies. Enroll in college-level courses on the commodities markets or speak with commodities trading experts to gather information, which is especially helpful for success in commodities trading.
Evaluate your financial situation and personality to determine whether you are comfortable operating in a high-risk market and almost certainly incurring financial losses, at least temporarily. Determine the amount of money you can safely risk without compromising you or your family's standard of living. Big winners in this market must be willing and able to lose money and view it as the expense to trade commodities.
Select a trading strategy before beginning trading. One approach is to use technical analysis, studying charts and graphs to predict future trends and probabilities, while another approach is to use fundamental information, such as news developments and market data that focuses on drought and other environmental changes, to determine likely price spikes and shortages.
Establish a demo commodities trading account and test your trading strategies before putting any money at risk. Practice and learn with your demo account, without the risk, before opening up an active account with a broker. After you create an active account with a broker, you can begin making trades using the system that you choose. Review your results and consult with other traders or a mentor for advice about making improvements to your system, if necessary.
Tips & Warnings
- Prudent investors respect the commodities market and make educated guesses and conservative trades to minimize the possibility for large losses. There are many self-proclaimed experts selling home study courses, but commodities brokers should proceed with caution before blindly following a program that promises success without investigating into the history of the program's results.
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- Commodity Trading for Beginners
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