Best Ways to Learn Free Commodity Trading Tips for Beginners
Commodity trading is the trading of commodities like metals, livestock, and spices among many others. While this is basically trading, it is quite different from stock trading. It is, thus, extremely important to first learn commodity trading and then only venture into its world.
Here are a few things you need to know to learn commodity trading:
- Understanding the types: Before getting started, it is important to understand the types of commodity trading available. Understanding the market protects people from investing without thinking. Commodities are usually divided into five major sectors:
- Agriculture: Spices, oils
- Metals and Minerals: Steel, aluminium, iron ore
- Precious Metals
- Energy: Natural gas, crude oil
- Understanding the basics: To do commodity trading, one needs to have a bank account along with a Demat account. This Demat account is like a log of all the transactions related to Commodity trading.
Commodity Trading happens through futures. A future is like a contract where two parties agree to make a delivery or a payment on a future date. This future requires you to predict the price of the commodity at a later date and if the price moves in that direction, then you make gains.
For example, if gold is trading at Rs 75000 per 10 grams today and you purchase a gold future at Rs 76000 for 30 days. If the price moves up to Rs 78000 after a week, you will gain Rs 2000 for every 10 grams of gold you had purchased. But if the price comes down to Rs 74500, then you would lose Rs 500.
- Diversify the capital: One of the most important commodity trading tips for beginners is to invest in several commodities. This ensures that even if one market faces losses, the other investment might gain. Putting all the eggs in one basket can give heavy rewards, but what if that market loses? Hence, a mixed bag of risk and rewards helps minimize losses.
- Know the volatility: Changes in demand and supply affect the prices of the commodities more drastically than stocks. This makes commodities more volatile and susceptible to high price movements. It is important to know that each commodity has different volatility. This will help the trader in taking positions and determining lot sizes on the basis of the commodities. Commodities like gold have low volatility and hence, the trader must take bigger positions while high volatile copper demands smaller positions.
- The logistics: The logistics of one commodity market varies from the other. Understanding the best time to trade, incorporating the news into the trades etc. help traders trade better.
- Knowing about the Technical Analysis tools: Specific commodity indicators need to be used for commodity trading. For instance, ATP or Average Trading Price needs to be kept in mind when commodity trading.
- Being specific: It is important to know about the commodities specifically. Like, demand and supply affect agricultural commodity while variations in currency prices affect gold commodity.
If you are thinking about starting with commodity trading, you must keep these free commodity trading tips in mind. Keeping a clear and knowledgeable approach always helps mitigate losses and making profits.
Writer – Sayantan Das