Getting into something new is sometimes a daunting task. You will be apprehensive and might be afraid of taking the first step towards a starting doing a new thing. This is the case if you want to start commodity trading. So, how can a beginner start trading commodity market?
As a beginner in the commodity trading market, you could be wondering or thinking about how you can get going.
Just thinking about how to start can be a pretty daunting task. It can lead to some form of paralysis.
Think of climbing to the top of the highest mountain in your region or country. The idea itself can be very intimidating. You could be wondering the kind of gear you need, how long it will take and the fear that you might fail are very real.
Commodity trading is like climbing a mountain. While you need to plan and prepare, no action beats just starting.
In this article and resource, I am going to share with you tips and ideas on how a beginner can start trading commodity market today.
How a Beginner Can Start Trading Commodity Market
Investing in commodities as a beginner is not as complicated as it seems sometimes.
You can start trading commodity market in the following ways;
- Research and understand the market.
- Open an account with a broker.
- Futures contract.
- Stock ownership.
- Exchange-Traded Funds (ETFs)
- Physical exchange of the commodities
- Contract for Difference (CFDs)
In the next section, I will try and help you understand what these seven ways are and how you can make use of them.
7 Ways to Start Trading Commodity Market as a Beginner
It is possible to start investing in the commodity market. It will require you create a plan and take actions towards trading commodities.
If you are a beginner, here are the seven ways in which you can start trading commodity market.
Research and Understand the Market.
To start trading in the commodities market, you should spend time to learn and understand how everything works.
This means you should research on the commodities you are interested in. acquire as much knowledge as possible.
It is important to also consult your financial advisor for professional financial and investment advice.
Open an Account with a Broker.
This is another step in your journey towards commodity trading.
A commodity broker is an intermediary that facilitate the selling and buying of commodities between a seller and a buyer.
You will need to open an account so that you can start trading in the commodity markets.
Some of the top brokers include FXTM, BlackBull Markets, FP Markets, Pepperstone, BD Swiss, Axiory and Capital.com among others.
To start trading commodity market as a beginner, you should use the futures contract.
A futures contract is a legal agreement to buy or sell a particular commodity asset. The idea is buying and selling a commodity at a pre-agreed price and at a specified time in the future.
When you are starting in commodity trading, you should be able to know this works.
Another way in which as a beginner you can start trading commodity market is by buying or owning stocks.
You can trade in shares of companies or commodity producers. It is an option you can use to invest in commodities.
Exchange-Traded Funds (ETFs)
This is basically a basket of securities or shares which are sold on an exchange.
You would be very lucky using ETFs because you will get benefits of two popular assets. Exchange-traded funds provide you with the diversification benefits of mutual funds and ease of trading that stocks or shares provide.
While ETFs are designed to track the value of an underlying asset or index, be it a commodity like gold or a basket of stocks such as the S&P 500, they trade at market-determined prices that usually differ from that asset.
Physical Exchange of the Commodities.
At the basic level of commodity trading, the idea is that buyers and sellers exchange their commodities at the marketplace.
While in most cases the exchange does not involve physical commodities, it is also possible for you to exchange the underlying physical asset.
Contract for Difference (CFDs)
As a beginner in the trading of commodities, you can also start by using contracts for difference (CFDs).
Trading using CFDs is a way of speculating on financial markets that does not require the buying and selling of the underlying assets.
CFD trading enables you to speculate on price movements in either direction. So while you can mimic a traditional trade that profits as a market rises in price, you can also open a CFD position that will profit as the underlying market decreases in price.
This is referred to as selling or ‘going short’, as opposed to buying or ‘going long’.
Commodity Market – Definition for a Beginner
As a beginner who is interested in starting to trade in a commodity market, it is important that you understand what a commodity market is and how it works.
In very simple terms, a commodity market is a marketplace that involves the buying and selling or trading different commodities.
You should understand that commodities are the raw products and include such things as oil, gold, livestock or agricultural products.
Natural resources are commonly referred to as hard commodities, while livestock or agricultural commodities are commonly referred to as soft commodities.
Now that have understood the basic definition of a commodity market as a beginner, let me explain to you what commodity trading entails.
Commodity trading is therefore the exchange of different commodities or assets. This is done through a contract called a futures contract.
This contract is based on the price of the underlying physical commodity.
As you start trading commodity market, it is good to know that you will be making bets on the expected future value of a given commodity.
Commodity market trading for a beginner
As you start your journey of investing in commodities, you should research and gather as much information as possible.
When you are a beginner, it is important to learn how commodity trading works and the types of commodities you can invest or trade in.
The commodities that you will trade in are typically divided into four broad categories. These include;
- Metal commodities
- Energy commodities.
- Livestock and meat.
- Agricultural commodities.
Understanding each segment of the commodities will help you to make the right decision as to which ones to invest in.
Commodities are an important aspect of your daily life. They are basic goods that are being used across the world today.
This is one of the things that make commodity trading exciting. It is possible that this might be what attracted you to consider starting trading commodity market as a beginner.
As an investor, starting in commodity trading is a smart way to diversify your investment beyond traditional securities.
Related: How Much Can I Earn from Commodity Market Trading?
It could also be another way for you to increase your income, which would improve your personal finances.
Because the prices of commodities tend to move in opposition to stocks, some investors also rely on commodities during periods of market volatility.
Process of Commodity Trading for Beginners
As you continue to learn how a beginner can start trading commodity market, you should also take time to understand the process.
Commodity trading takes place at an exchange, and that in itself requires you know how trading works.
Commodities are traded on an exchange through futures contracts, stocks, and ETFs, while they can also be bought and sold in their physical states.
The largest commodity exchanges in the world are:
- CME Group
- Tokyo Commodity Exchange
- Dalian Commodity Exchange China
- Multi Commodity Exchange
- Intercontinental Exchange
- Africa Mercantile Exchange
- Uzbek Commodity Exchange
Some exchanges specialize in a particular group of commodities, including:
- Chicago Mercantile Exchange (energy and metals)
- ICE Futures US (agricultural products)
- Chicago Board of Trade (agricultural products)
- LIFFE (agricultural products)
- London Metal Exchange (non-precious metals)
- ICE Futures Exchange (energy)
In conclusion, you have clearly seen that getting involved in commodity trading market as a beginner is possible. You can take steps towards becoming an investor in commodities.
However, you should invest in learning and education on how the commodity market works. This will help you to reduce the risk of making mistakes and thus losing your investment.
As a beginner, you can start trading commodity market by doing research on available options, understanding the type of commodity you want to trade in, opening an account with a broker and keeping an eye on how the market is moving.
This is something you can do from the comfort of your home today due to the advanced technology and platforms available for trading commodities.
In fact, there are apps that are available for commodity trading investors. This means you can take part using your smart phone from any location in the world.
Commodity trading provides you, even as beginner, with an extra opportunity to diversify your investments.