3 Ways to Profit Selling Commodities | Motilal Oswal

3 Tips to Profit Selling Commodities




Trading in commodities these days gives you opportunities to make real profits. Although, like stock trading, there are risks involved, if you organise your strategies well beforehand, you can make decent gains. Commodity prices, unlike share prices, are influenced more strongly by a number of world events as they are, by their definition, commodities that are either in demand or large supply. Commodity online trading has become very easy, and this is why traders and investors throng these markets in a bid to make profit and diversify portfolios. If you pay heed to some good tactics and tips, you can profit in the commodity market too. 

Unlearn Some Concepts

If you are just entering online commodities trading, you may have to unlearn a few things if you have been habituated to trading in stocks so far. The part of online trading itself is not a challenge in commodity trading, but knowing about different commodities is distinct from knowledge about stocks. In terms of commodities, world events affect prices to a great extent. This may not be true when you traded in the stock market, depending on the companies you were trading in. Furthermore, commodities and their prices swing up and down a lot more than stock prices do, barring gold to some degree. This is how you get started, and then you can follow three handy tips to get you going further. 

1. Select Your Market

The first tip to successfully get into the rhythm of online commodities trading is to choose your market, and stick to it for a while. Those who achieve success in commodity trading specialise in a single market, like cotton, or precious metals, exclusively. Once you get to know about trading practices and price influences in the single market, you get familiar with it. This helps you to apply trading practices better and hence, get effective in ways to make profits. This is a case of too many cooks…or rather, getting your hands in too many baskets at once. Focusing on one commodity is the key to success. 

2. Get to Know Price Trends

As with all trading, commodity online trading requires you to know price shifts and momentum of commodities before trading actively begins. As access to these markets is widespread, with a number of options in investing, traders tend to get carried away before studying markets appropriately. 

The quotient of demand and supply in commodity markets (for basic raw materials) is normally less subject to a lot of volatility relative to stocks. Certainly, you will discover some trading days which are volatile, like those occurring at the close of major bull or bear trends in major long-term market reversals. Additionally, some volatility may exist due to a crop report being published, estimating yields to be either good or bad. Generally, there are some periods in which the market sees some stable patterns of trading - this is when short supply or high demand tends to control the market, and prices are driven higher. You may also see periods of over supply and lack of demand - here, prices will be low.

3. Leverage the Market’s Nature

Commodity online trading is effective if traders pay attention to one factor that is distinctive to commodities. This is the variable of seasonality. Almost all main commodity markets have a tendency to follow in the wake of price patterns determined by seasons. A straightforward instance is natural gas and oil futures. Both commodities are prone to, year after year, increase into winter seasons in which there is high demand. Demand falls in the months leading to summer. However, traders should look for factors like world events that may disrupt these common patterns.

Final Lines About Commodities

If you wish to open a demat account to trade in stocks, or are already used to the stock markets, you can trade in commodities too. There are many ways to diversify your portfolio, and exploring any upcoming IPO is a good bet too. 

 

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