Commodities trading involves more than casually dipping a toe in the waters of the stock market. Commodity traders take the plunge and spend time learning about the commodity itself, as well as how it moves within the market. If you’re a beginner in the commodities market start with an area you already know, and then evaluate your inclination for risk.
Select The Right Commodities
Refrain from choosing multiple commodities to trade that you know nothing about, and concentrate your efforts on only one or two commodities that you can study. Oil and gold are popular trades, but corn and soybeans are worthy alternatives. Day traders like to deal in oil and mini S&P. Oil is a popular trade on Friday’s when the CFTC Crude Oil speculative net positions are revealed, and when Baker Hughes reports its U.S. oil rig count.
You’ll find multiple trading opportunities in liquid markets, as certain setups occur frequently, but be aware that you’ll also find multiple crowds. With the constant change in trading conditions and markets, what offers a good trade one year might not offer as much the next. And since global supply can change within minutes, commodity traders must monitor the market daily.
Expand Your Industry Knowledge
Commodities are basically raw materials that make up the goods that people manufacture, transport, and consume. The most common commodities and their trading symbols are:
- Gold (GC)
- Crude Oil (WTI)
- Rough Rice (ZR)
- Corn (EMA)
- Wool (ASX)
It’s likely that you already have some good knowledge about at least one commodity in your daily life. If you’re an Uber or Lyft driver, you likely watch gas prices daily. A bakery owner keeps a close eye on the price of wheat or sugar. Construction companies watch the price of lumber. If you have any commodity experience through your work, you’re already one step closer to profitable trading.
Keep An Eye On Small Moves And Large Swings
Some commodities can make small moves each day, while others can make large swings. This is part of the volatility of commodities. Be sure that the commodities you trade fall into your risk parameters. Not all commodities have equal risk, and you should always make sure that the amount of risk is appropriate when you pick your tradable commodity.
Check the futures margin to judge the validity of each commodity. This margin is based on several factors, but it mainly deals with the daily price swings of futures contracts. Pay close attention to the exchange, as the values change with market conditions. Many traders stay away from commodities like pork belly, rice, oats, and feeder cattle for liquidity reasons. They aren’t very active, which makes them difficult to trade. There are other commodities you might not be able to trade simply because you don’t have enough in your account. Refrain from risky trades in futures options unless you have gotten to a professional commodities trading level of control and trading insight.
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Important Futures Trading Disclaimer
Trading futures and options involves the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options. Investors could lose more than their initial investment. You must review customer account agreement prior to establishing an account.
Past results are not necessarily indicative of future results. The risk of loss in trading can be substantial. Carefully consider the inherent risks of such an investment in light of your financial condition. Though proper education, tools, and practice are necessary, they do not guarantee profitable results.
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Internet Trading Risks
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Your broker may have a contractual agreement not to seek redress for slippage, it’s obligation to execute stop loss orders at the stop loss price or better, will not apply to limit and stop loss orders during hours when it is closed. This also does not include bad price spikes. Bad price spikes are removed from the price charts quickly to alleviate confusion.