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Trade Commodities

How to Trade Commodities

Commodity trading covers the buying and selling of a massive variety of instruments consisting of oil and gas, metals together with gold and silver and softer commodities like cocoa, coffee, wheat, and sugar.

Commodity trading is as old as the economic markets, and perhaps even older than the current stock and Forex market. The first instance of a prepared alternate for buying and selling commodities dates lower back to Amsterdam in 1530. These days there are an entire host of markets to be had to alternate with only some clicks of a mouse or taps on your mobile device. However, a few commodities continue to be as famous as ever.

If you are a Forex trader and trying to move on commodity trading or you are very new in commodity trading you will see a proper guideline with a step-by-step approach to commodity trading.

In case you are very unfamiliar with the commodity, we will guide you to the basics of commodities with how you can trade with it.

A commodity is a basic suitable or raw material in a trade that individuals or institutions purchase and sell. Commodities are often constructing blocks for more complicated items and services. The difference between commodities and other sorts of goods is that they're standardized and exchangeable with other goods of equal type. These features make commodities more exciting among traders.

Generally, commodities are grown, produced and traded in massive quantities to guide liquid and most efficient international trading markets. These markets offer a transparent manner for commodity producers, consumers, and traders to operate their business activity. Some examples of most traded commodities are oil, corn, wheat, and copper.

For retail traders, commodity trading means trading the Contract for difference (CFDs) of particular commodity trading instruments. In that case, you don’t need to buy the actual commodities in your warehouse. Instead, you can make a profit with the change in prices.

What are the Commodity Trading Instruments?

There are thousands of commodities in the world. All commodities are not traded in the international market. However, there are lots of tradable commodities in the market that are divided into four categories:

#1 Agricultural

The agricultural commodities include food crops (e.g., cotton, corn, and soybeans), livestock (e.g., hogs, cattle, and pork bellies) as well as industrial crops (e.g., rubber, lumber, and wool) 

#2 Energy

Energy includes petroleum products like crude oil and gasoline, heating oil, coal, natural gas, uranium, ethanol, and electricity. Of these, Oil is mostly used and traded commodities in the financial market.

#3 Metals

Precious metals are another mostly traded commodities. Some examples of metals are gold, silver, platinum, and palladium. Moreover, base metals include aluminum, nickel, steel, iron ore, tin, and zinc.

#4 Environmental

This environmental category includes products like renewable energy certificates, carbon emissions, and white certificates. Although there are only four categories these contain dozens of traded commodities.

How to Trade Commodities

How to Trade Commodities 1

This environmental category includes products like renewable energy certificates, carbon emissions, and white certificates. Although there are only four categories these contain dozens of traded commodities.

#1 Choose Your Favorite Commodities to Trade

This is a basic step. You have to choose your favorite commodities to trade. There are a lot of commodities available to trade. However, all commodities might not be available in your broker. Therefore, you can navigate your broker's available market options to see the available trading instruments.

There are some common trading instruments available in any broker such as Crude Oil Brent, Gold or Natural Gas, that you want to bet or trade CFDs on.

#2 Analysis and Decision

After identifying the appropriate trading instrument you should identify the direction of the market by making technical or fundamental analysis. 

The Fundamental analysis means making a prediction on a price based on economic and fundamental events. On the other hand, technical analysis requires a trader to master technical charts.

#3 Take Your Trading Decision

In this stage, you should decide on the amount per point movement or how many units (CFDs) you want to trade. When trading CFDs the value of one unit may vary depending on the nature of the trading instrument.

After entering the trade you should consider the possible stop loss and take profit level and you should not trade that has higher risks.

Manage your risk

After setting your trade, observe your open positions to comply with your real-time profits or loss. Please take into account that losses can hamper your investment.

Select from a selection of prevent-loss orders such as guaranteed stop-loss orders (GSLOs). GSLOs works exactly similar to regular stop-loss orders, besides that for a premium, they assure to shut you out of a trade at the rate you specify irrespective of marketplace volatility or gapping. The top rate is refunded incomplete if the GSLO is not triggered.

If your trade isn't automatically closed as a result of a stop or take profit order being triggered, close your exchange while you are ready.

Trading Futures and Margin Calls

How to Trade Commodities 2


Trading in futures calls for a good-religion deposit or margin. Commodities are a very volatile market. Margin calls requiring additional capital are likely in the event that the fee of your investments drops too much, your dealer may provoke a margin call.

A margin call happens while a broker requires you to put more capital into your account because values have fallen under the minimum required equity balance you have to maintain.

A trader that remains at this stage of trading is "trading on margin", a totally unstable and costly way to trade. If you do not now have the capital to assist the economic hits, it may require borrowing more money every time you lose money. Many buyers lose a splendid amount of money trading on margins.

Final Thoughts

Exercise caution inside the commodity markets, do your homework and technique these risky contraptions with care and trepidation. While fortunes can come from commodities buying and selling, the capability for losses is just as great.

Online trading has increased the efficiency of execution. Remember to keep yourself in-line to make buying and selling as a business—with a plan, discipline, and precision. Mistakes may be very expensive, so work to preserve your buying and selling to a minimum.

The maximum successful traders are masters of efficiency. Mastering on-line trading calls for a stage of knowledge that comes from tough paintings and study. Make sure you use all of the statistics that are at your disposal. The platforms want you to succeed because a successful consumer makes them successful as well.

Lastly, in view that all commodity futures trading is leveraged and calls for using margin, you have to diligently research and seek training on the regulations and consequences of buying and selling futures with margin. You must virtually apprehend how much money you can lose in that environment. You ought to also study a way to decrease the hazard of loss at the same time as you're trading and spend many hours practicing and honing your capabilities earlier than you put any money at risk within the endeavor.

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