Commodities Trading and What You Need to Get Started
Commodities Trading and What You Need to Get Started
Commodity prices can be significantly affected by external events, such as political instability, changing levels of demand and the ability of producers to supply sufficient quantities of a particular commodity. Many investors use spread betting as a convenient way of speculating on the future price of commodities / commodity price fluctuations, although you can also use Contracts for Difference (CFDs) to trade the markets.
Some of the more commonly traded commodities are Brent crude oil, US light crude oil, heating oil, gold, silver, sugar and coffee.
A critical step you need to take, before you trade any commodity, is learning about the particular market; how trading works in practice, trading strategies and how to keep up-to-date with recent commodities news.
You can speculate on the commodity markets by either buying/selling the commodity itself, or trading via a derivative like financial spread betting or CFDs. With spread betting and CFDs, speculation revolves around the underlying commodity price.
If you are a newcomer to commodities trading, you may want to spend some time choosing a trading platform that most closely matches your needs. A common feature of commodity trading accounts is access to relevant news sources.
The price of a commodity can be significantly influenced by external events, such as currency exchange rates, elections, the fall of a ruling regime, official speeches about interest rates, protectionism or any other major news event. It therefore makes sense to invest in a reliable news source that analyses such events in direct relation to the commodity you are considering trading.
Always have a plan before you trade the markets. Professional and highly experienced commodity traders often develop new strategies on a regular basis. You should always monitor your strategy due to the fact that the commodity markets are constantly evolving, and you may need to modify your strategy accordingly.
You should find a balance between executing one strategy and changing it for another. Essentially, if a strategy is unsuccessful, consider changing it for another, although it might be wise to try to understand why the last one didn't work.
Opening a demo trading account with companies like IG Index and FinancialSpreads.com can help you to gain experience and trade your chosen market without risking any funds. Of course, actually trading the market with a real money account, rather than a demo account, may teach you more about your strategy. Needless to say, practising with a real money account does come with it's risks.
When you first set out to trade commodities or speculate on price fluctuations, it may be best to start with a small level of investment. Commodity markets can be volatile and can move against you with little or no warning. A good rule is not to trade with more than you can afford to lose.
Spread Betting and Contracts for Difference trading are leveraged trading products which carry high levels of risk. Losses can exceed the original amount of funds you invested. You should always trade with capital you can afford to lose. Ensure that you fully understand the risk. You should note that Spread Betting and Contracts for Difference trading may not always be suitable for all investors; where necessary seek impartial trading guidance.
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