When people think of investing, they think of investing in stocks, or perhaps in debt, either directly or by investing in mutual funds. However, one can also trade in commodities. Commodities are the raw materials that are used to manufacture refined goods. Commodities are standardised, meaning that two separate units of a commodity in equal measure can be bought and sold and traded just like any other financial security. With the flood of digital trading platforms, commodity trading has never been easier. Here are a few tips for getting started with online commodity training.
- Start Small: To begin with, it is advisable for traders to only invest smaller amounts. Hence, you can avoid any disappointments if there are any losses in the beginning, and this will give you more freedom to make mistakes as you learn the ropes.
- Know the Basics: Understand the types of commodities that are exchanged, namely Metal, Energy, Agricultural and Environmental Commodities. It is worth first using a simulation to practise your trading and understanding the strategies most commonly used.
- Know the trading options: The most common form of commodity trading occurs through commodity futures contracts, wherein the seller agrees to sell the commodity in question to the buyer at a future date, at a specific price. For example, let's say you agree to buy 10 grams of gold for Rs. 50,000 in 30 days. In 30 days, the price of gold is Rs. 53,000. You can now buy the gold at Rs. 50,000 and sell for Rs 53,000, netting the difference.
- Diversify: If you are trading in commodities, diversifying is one of the most useful tips. It is wise to not put all your eggs in one basket in order to avoid risks. Investing your capital in different commodities can help you assess which ones are low or high risk, all while protecting your investment and balancing your trade. However, make sure not to invest in too many commodities, lest you end up negating any potential returns.
- Using Leverage: Commodities tend to be highly leveraged assets, meaning that you will likely borrow money from your broker to fund your commodity trading, in the hopes of getting strong returns. Indeed, before beginning
- Use Trading Tools: One of the best tips for online tips is making use of online trading tools like price alerts, watchlists, global search bars, charting tools, portfolio management tools and so on. These tools can help you make informed decisions rather than acting on impulse.
Online commodity trading, like other forms of online trading, is convenient and more accessible than traditional trading and comes with several benefits. As long as you remember the basic rule of not overtrading, remain patient, manage risks, research extensively and apply the tips and strategies, you will find online commodity trading to be very rewarding as an investor.
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