Commodity trading basically refers to trading in physical stocks. This can include everything from precious metals like silver and gold to crops like corn and grains. However, unlike some other investment options, trading commodities is not easy. There is no real correct time to enter the market, and it can be harder to understand whether a specific commodity will increase or decrease in price.
If you are considering investing in commodities, perhaps through a trading platform like easymarkets.com, keep reading. We’re going to give you some tips on how to increase your chances of success.
How can I be successful?
If you wish to be successful in trading commodities, it’s essential that you understand both the commodities market, as well as the individual areas of stocks you’re considering investing in. Whether you’re considering trading in crude oil or precious metals, without the knowledge and experience, or understanding of how this market in particular works, it’s unlikely to lead to any real returns on your investment or profit – unless you elect to go with a brokerage firm.
Much like real estate investing, commodities trading also requires a substantial amount of experience, knowledge, and the patience to observe the market to be successful. And, you need to know when to jump in, but also when to jump back out and walk away with your profits or cut your losses.
Tips for Maximizing Profits
- Avoid overtrading – This is something that is stressed time and time again, and while so many investors read this piece of advice few seem to genuinely appreciate and apply it. Investing upwards of 50% of your capital in one specific stock or commodity is an extremely risky approach to commodity trading and decreases your likelihood of profits both in the short and long-term. While some might see success this way, most statistically lose their capital and can even go under and find themselves in debt.
- Learn and trade with short-term trends – If you conduct the adequate research or invest your money into commodities through a trusted, reputable, and profitable brokerage you can maximise your commodity investments and profits by following short-term trends. While long-term trends do have the possibility of generating profits, they also understandably have the potential to slowly take away your capital or profits over a prolonged period – and then what option will you be left with?
- Apply logic when using a “stop loss” approach – In other words, if this is a feature and strategy you will apply to commodities trading, do it with great discretion and don’t make it too “tight”. Doing so can either minimise or maximise losses. But, with just the right amount of space for market drops and rises you can experience more consistent profits, while minimising capital losses in the event of undesirable market change.
- Think to the future - Lastly, think beyond “supply and demand” and combine your approach and this logic with a risk vs. reward formula. If you are not using this, start doing it now, as it will assist you in making more practical, and likely profitable decisions both in the short term and long run.
Keep these tips in mind and you should make some good decisions when trading commodities.
