Commodity trading is the process of purchasing a commodity for a set price with the hope to sell it later down the track for a potential profit. There are two forms for commodity trading that revolve around cash contracts and futures contracts. Cash contracts are also known as physical contracts. This requires the buyer to pay cash up front, which means that you must pay the contract in full on receipt of the contract. You can then go forth and sell the contract to someone else which transfers ownership of the contract and the goods contained therein. This generally considered the least risky of the two commodity trading format as you are not reliant on the future viability of the company as much as you would be by investing in their future.
You can also break up the process of buying physical contracts into another two subcategories which are spot and forward transactions. Spot transactions are reliant on the payment by the buyer on delivery of the goods specified in the contract. Forward transactions are reliant on cash contracts that are specific to the physical market. This is akin to getting the goods in credit with a predetermined time frame in which to pay for the goods.
Commodity trading is fickle territory and it takes some knowledge of the market you are entering before you do so. Future contracts are reliant on paying up front for a contract or products that will be forthcoming at a later date. It is like waiting on a back order (if you have ever ordered something online and found the supplier is out of stock you will know what I mean). Because future contracts are reliant on the long term survivability of the company in order to ever see your contract or products it is generally considered a much riskier investment.
It all starts with a dream – the dream to make a lot of money. Commodity trading may just be the key; however, how do you get into the industry? Well other than your dream, it is likely to also start with finding a broker who is able to do your transactions for you. You should hunt around for a broker who works only in the field of commodity trading. Find a broker who knows the industry and can give you some guidance in regards to your investments. Also compare prices as some brokers can charge an extremely high fee for their services – this is particularly true if they are also an advisor.
Next up you will need to open up a commodity trading account. You need a specific type of account that will hold your commodity assets and collate your contracts accordingly. You will also need to ensure that you can connect the commodity account with a means to get the money out of it. Because the commodity trading account won’t just hold your contracts for you – it will also store your commodity trading profits. What is the point of having a commodity trading account if you can’t draw funds from it?
So you’ve got your commodity trading account and a good broker. Now you have to know how to utilize them. That will include keeping your ear close to the ground in order to find the right investments. Of course you can also approach your broker in order to find the best starting investment. It will generally involve a low risk purchase that is definitely going to sell. You will also need to arm yourself with plenty of patience. Don’t rush out and buy a thousand of the first commodities you come across. Do your research first and always look for a second opinion.
Commodity trading can be a harsh mistress for those new to the commodity trading game. An easy analogy to consider when starting it is that of how a retailer may manage their stock. So the retailer is sitting on a lot of products that he wants to sell, the specific products are not particularly important for the sake of the analogy. If the retailer is well known then people will want to purchase product from him – maybe he has an excellent track record in regards to price or customer service – what is important is that he is selling something people want from him (especially from him).
This allows the retailer to alter the price so that he can get more money from the consumer. Because people know that the retailer is there and he can give them the product they require (or need – consider want versus need in a marketing sense). Commodity trading works similar to this. Let’s add another twist to the story. Suppose instead of the retailer – we consider the supplier (the person who supplies the retailer with product). The retailer may order a certain amount of products from the supplier but is unable to sell them or doesn’t end up needing them. The supplier can then sell the stock to another retailer.
Commodity trading works like this as well. The retailer holds the stock; however it may not be rushing to sell it. If the supplier wants it back to sell the stock to someone else then the retailer can sell the stock back to the supplier in order to pass it on to another retailer. You are essentially trading something that does not need to be sold immediately. You are sitting on an investment waiting for the right time to sell it. The concept is ridiculously easy to understand; maybe you just need to wait for the right price.
While the terms stock trading and commodity trading are used interchangeably they are not the same thing. Either way you are investing in the future of a company and are purchasing an interest in the long term survivability of the company commodity trading is more concerned with purchasing a contract from the company that is essentially an amount of physical products that are offered or manufactured by the company. You can then go and sell the products to a supplier or retailer in order to make money. It is a much more complicated method of investing in a company than share trading – however, you are still buying stock (so to speak).
Commodity trading requires a little more finesse than share trading – you need a means to sell your commodities (whether they are in futures or physical form). This means you need some sort of connection to a means that can actually sell the product. Your stock (in the form of commodities) is an actual physical product – even if you never see the product you have a contract that stipulates your ownership of the product. This is where commodity trading becomes a hazy territory for new comers. They believe that they are selling a non-physical product when in fact they are.
Therein lays the main disadvantage that applies to commodity trading. Finding a buyer for your commodities may not be easy – it also may end up costing you money if the buyer is unwilling to pay more than a certain amount. If the commodity is fairly low demand because it was part of a fad (i.e. the shoes called ‘Crocs’) you may end up with a product that nobody wants to buy eventually. That is why it is not worth the risk investing in something that is likely to fall out of fashion relatively quick.
Commodity trading does not need to be difficult, occasionally risky; but not difficult. There are a few basic tips to keep in mind if you are considering starting out in the field of commodity trading. Firstly, if a deal looks too good to be true then it probably is. Sometimes the smartest way to trade a commodity is by not trading at all. Holding back from trading in something that is too risky is a good idea, this is particularly true if you little to no information about the company. Although sometimes a new company will hit the commodity trading scene and start generating points straight away – these companies are few and far between.
Another good tip is to remain level headed whilst commodity trading. It might be easy to get excited or angry about a trade. However, these are the times that you are more likely to make a mistake because you are not thinking properly. If you are trading electronically take a walk in this instance, clear your head and think about your next move. Make sure you think long and hard. If you can’t think straight then take a day or two away from the computer in order to sort out how to make your next move.
Commodity trading while relying on news outlets to fill you in about how a company is going is a bad idea. This is because news (contrary to popular opinion) does not travel all that fast. A company may be seeing a lot of growth during the course of a day – however, the growth will probably stagnate before you have a chance to invest. This means that your initial investment is unlikely to rise any further for a while. It also means that you purchased the stock after the initial surge so you are going to be paying more for it.
Risk management is instrumental in becoming a successful commodities trader. Commodity trading can be a fairly intense way to make money. The intensity comes from risk. You can help ease this intensity by making careful investments and offloading commodities before they become a liability rather than an investment. Commodity trading is all about managing what you in your portfolio – the beauty of the commodity trading market is the ability to diversify your holdings. You are not limited to a single commodity and you have to ability to trade commodities. If you are comfortable trading a specific commodity then changing what you wish to trade in may actually be to your detriment; do your best to follow your instincts.
Commodity trading successfully may require you to disregard your instincts sometimes. If all signs point to yes and your instincts are holding you back then you should probably suppress the urge to not invest. Making money from the commodities market is built upon risk. Although if something seems like it is fraught with danger then that would be a lousy risk to take. So there is a line that you shouldn’t cross. Nobody said commodity trading was an easy way to make money. Gather all of the information you can about the risk – look at market trends as they relate to the time of the year.
If you can afford to purchase commodities that are unusually cheap then do it. Don’t hesitate – the hesitation may end up costing you a great investment. The commodity trading market moves extremely fast. A commodity can change price dramatically over the course of a few hours as it is heavily reliant on the demand of the commodity. Balance risk with awareness for the best possible results when trading on the commodities market. Don’t take unnecessary risks and educate yourself.
A commodities trader is anyone who is for the best and the most efficient as well as legally sound ways of being one, is a person who indulges and divulges in the area of commodities by being the trader in commodities. Any individual looking to invest or trade in any commodity that is listed in the commodity market automatically qualifies as a commodity trader. This of course comes with the purview of the conditions that apply. One needs to be over the age of 18 as this is what defines a person to be of suitable age at the minimum for trading purposes. The qualifications are not many, there are no educational implications to become a person who wishes to trade in the vast and the recently even more charismatic trade of commodities and the charismatic market thereby that has become prevalent in the world and arena of the trading market.
A commodity trader needs to, in any case, be well informed about and regarding the various aspects and tiers related to the vast and the very possible to get lost world of the commodities market! The market is recent, as compared to the market that has been prevalent in stocks and shares for a very long time now. But the commodities market is one that is bright and that has the novelty of the trade that has not worn off, meaning to say that the novelty is one that is yet shining as well as bright in its nature. It is essential to remember that one who is an adult with the capacity and the inclination towards wanting to be in the market trade of commodities are ideal candidates to enter and invest as well as consider the different possibilities in a trading of this kind.
A commodities broker is one that indulges in the broking work related to the exchange of the commodities in the commodities futures market. The reason the word futures is used is because the actually and the tangible product or commodity is not involved unless and until there is a gap or a termination in contract or if a deal is done that involves the actual trade, per se. A commodities broker is different and unique from a commodities trader, to state the obvious. He or she is also different from any other broker or trader as the commodities market is a different and a unique one.
Who are commodity trading brokers?
The word or the term broker is one that is used for a person who is involved in the broking or the intermediating of any transactional exercise of any kind. The world broker is common in the world of the share market, and today, the word broker is that of common occurrence and graph showing even in the world of the commodity market and trade. The commodities futures’ trading is done by a person who is referred to as a commodity broker. The commodity broker essentially permits and undertakes the functions of trade between the person looking to buy a commodity or make a transaction in the same and the seller of the same; this is an explanation in a very amateur way. In the virtual world or even in the trade world, there are no actual words exchanged between a seller and a buyer. There are a million buyers and there are a million sellers. The bridging of the gap between them is formed by the broker of the commodities. The commodity broker is one that is well paid and it is a well sought after profession but in the intense competition and novelty of the job, it is importance to get into it with prior knowledge and have a good understanding as well as an experience of it in the field or the market.
The brokers are ones that get a commission for every one of their accounts. Or otherwise stated, they work on a commission basis per transaction undertaken. The commission ranges from 0.05 to 0.12 percentage which is a reasonable commission rate, making the role of a commodity broker one of gaining and competitively inclined importance and beneficial as well. Technically, a commodities broker indulges in making any transaction possible related to commodities and commodities futures. The commodities that are most likely to be sought after for any form of activity, may it be a sale or a purchase, is Gold. Gold is a commodity that is as strong in its foothold in the market area today as it was in the earlier day and age. Today, with many a commodity that has an increase in its popularity and with fluctuating price structures, a good trader will know and perform wisely with the intervention and the expertise that a good and more importantly, a reliable broker in the commodities sector or arena.
Commodities trading is a fairly recent trend and exposure in the trading arena or the markets of trade. The commodities that are bought and sold in a market, as is items such as stock and shares, is called commodity trading. The trading that happens in the market related to commodities of a kind, or in other words, activity related to commodities exchange or commodity sale and purchase is called commodity trading.
With the concept being fairly recent as opposed to the share market trade which has been mastered to an art form, the commodity market is still considered one that is a new comer. Though it has been a common occurrence to watch commodities like gold and silver be sold and bought even earlier by local traders, never was it exposed to this greater degree of transactions and especially now, with the invent of online trading that can happen.
Let us see an example for commodity trading. Supposing one has to buy gold, a gold futures trade is done by signing a contract. This contract is one that states the purchase of gold, at the stated price. The good thing is that the entire price does not need to be paid at the time. Only the fixed percentage of the cost needs to be paid while the contract forms and conceptualizes. The brokerage is 0.05 to 0.12 percent which is a minimal percentage to pay. In real trading, one needs to actually store, buy and/or sell gold. In contracts or commodities futures trading, there is the virtual presence of the commodity exchange but the amount one can procure and even at the expiration of the contract, one can receive their sale amount or their gold or their money, which makes the transaction one that, is an efficient and a stable one!
The contract is an easy way to mark the transaction that takes place. One need not worry about the exercise as it is one that is easy and capable in its performance. Contract trading in commodities is what this kind of trading is all about. In the above mentioned, a cited example regarding gold, which is today, and yesterday too was considered a major investment of sorts, was mentioned in the former. It is essential to realize that viewing of the NCDEX and MCX is important for the updating that one needs in the area of commodities trade.
Trading accounts can be opened online for commodities and this is feasible the same ways in which the other accounts or the other factors that play in any normal method of transitioning or forming any account or trading in any other normal way. Trading accounts can be set up. The requirements are as usual. The investor or the person who is looking to make transactions online needs to be over, if not at 18 years of age. This is the initial requirement as a person needs to be an adult to identify with the every changing as well as the fluctuating designs and patterns of the market, in general.
Whether the market be one that is related or connected to stocks or shares, or then, if the market is related or connected to commodities, it still has the basic requirements and guidelines that are relate bale The trading accounts for commodities online can be formed with the basic or minimum investment of Rs.5000 or of course, more. The need to have a bank account is a must or a compulsion, as one may wish to put it. This, along with a individual or a separate demat account is a must.
The separate demat account allows for the independent transactions related to commodities to take place and this helps in the entire procedure and prices. The commodities that are most often trade in are gold, silver and pulses. Pulses such as oil seeds can be considered a prime example. Oil seeds concepts of popularity range from the fact that oil is precious and therefore pulses or seeds in the purview of the same are of utmost and gaining importance and asset. The trading accounts for commodities online are done and created to form ease in the procedure of trade for the commodities exchange and trade. The value of commodities keep fluctuating but all of this information is provided to one online as one needs to have an online account open as well as active for updates and for the reason or purpose of actual transactions and the daily trade of the same. Online transactions help in comfortable trading as all activities and deals are done online. Cash is credited and debited with the preliminary account check and identification online. The accounts are actively activated via the internet and his makes the procedure of online trade one that is efficient and this is surely more than effective.