5 Commodity Trading Tips
Until now, not many investors have the seen the benefits that commodity trading can reap. Commodities like silver and gold can give investor good returns over time. It also has a great impact on the economy of the country as a whole and people as individuals.There are four categories of commodities that have been a part of the trading industry - Energy (natural gas, crude oil, gasoline and heating oil), Livestock and Meat (cattle, hogs, feeder cattle and pork belly), Metals (copper, silver, gold and platinum) and Agriculture (rice, coffee, wheat, cocoa. soybeans, corn, sugar and cotton).A few commodity tips to note are:
1. Commodity trading can be a risky business and follows a few commodity strategies. There are certain factors that not in the control of the investors like natural weather changes affecting the growth of crops, natural disasters or any kind of epidemic. Hence, it would be smart to keep aside more than 10% of your investment for commodities.
2. A few commodities are sensible to trade and a few are risky in nature. Volatile markets usually come across traders and investor who wish to store their money in precious metals like gold which has been considered reliable over the years and ensured a certain return on investment. Investors incurring losses in stock market can always shift to trading commodities like metals.
3. Practices like forward contracts, futures and hedging are common with commodity trading. For example, the airline industry utilises fuel in large amounts on an everyday basis. It is very necessary for them to get their fuel inflow at fixed and stable prices without letting any market performance affect their inventory. Hence, airlines practice hedging, to not incur any risk for the company or the investors of the company. Without hedging, fluctuations in commodities can lead to the bankruptcy of companies that require accurate predictions to manage their expenses.
4. One important tip to keep in mind while dealing with commodity trading tip is to put across quality control standards and relative measure to make sure the commodities delivered to the investors/ traders meet the standards. When commodities are delivered in the final validity period, they are said to meet the quality standards.
5. Constantly keeping track of the market performance, helps one decide which commodity to invest in, when to enter and when to exit the trade, as there are multiple multi commodity exchange processes happening all over the world, and at all times.
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