The first thing you hear on the mention of Commodities trading is a bad word called ‘Volatility’. Wild unpredictable market swings and irrational behaviour of fellow traders who defy historical charts!
What if the ‘New Trader’ gets to enjoy the healthy clinking in his bank account, but not be fearful of the wild, erratic swings in prices that Commodities trading entail? Not an impossibility if he is an ‘Informed trader’ and his ‘Game plan’ includes flexibility to deal with more than one possible market scenario!
The readily exchangeable value of Commodities, makes it an exciting improvement over Equity, leveraging trades through a choice of commodities, committing lower margins and an Investor’s portfolio gets empowered with a good risk spread plus attractive returns, when an ideal mix of Commodities and Equities populate his assets.
The multifarious entry points into Commodities trading (other than directly in the physical commodity at Spot or current prices) include Investing on Future prices, via
- Exchange Traded Funds (eg. Gold Funds)
- Commodity Mutual Funds (eg. Gold, Energy invested Funds)
- Index Funds (eg. Tracking a standard market index such as iCOMDEX)
- Futures (eg. Copper, Silver, Cotton)
- Options (eg. Crude Oil options)
Do you have a view on how price of a physical commodity is likely to swing? It could be Agri products, Metals, Energy resources or even Services sector offerings. You can be the wizard wielding the wand …
‘That smooth-faced gentleman, tickling Commodity,
Commodity, the bias of the world -’ (King John, Shakespeare-Act 2, Sc 1).
A well established and efficient Broker could carry out your strategic thinking and help you monetise it, unlocking your intelligence and foresight, from the comfort of your home!
Let’s count down the 10 most reliable free commodity tips, which are overlooked by sluggers in the commodities market, but which are giving trading legends their swag:
1. Choose a Broker with the whole package – Trust worthy and of Good Standing, Experienced in Commodities Trading and with a proven track record with clients, offering an Economical and Competitive fee structure, Accessible to you at all times, offering a Digitally superior experience in Online trading/eBroking and one whose insightful trading advice could empower you, complementing your predictive acumen.
2. Decide what kind of trader you want to be: A Hedging Trader seeking assistance to risk manage and offset market related risks by booking perceived profits, in the futures market.
A Speculative Trader hoping to profit from market movements within a trading day ie. The Intraday Trader, squaring positions overnight, or a Swing trader who believes in longer researched investments, who times his entry and exit at pre-decided, levels with a capacity to bear Carry Costs. A good clarity in defining your approach would help you set achievable goals and get nearer to them.
3. Carry out Daily Market Analysis diligently: Whether it be Demand and Supply dynamics (Fundamental Analysis) or Trend recognition through chart patterns, (Technical Analysis), or a happy marriage of both to reinforce your intuition, never go for random picking of buys/sells. While your information sources could be plenty, you would be well served getting as much Industry Knowledge as possible before trading.
4. Walk through as many Trade Scenarios as possible, before making logical trading decisions and initiating them. The innumerable factors and physical events around the world that affect Price Dynamics, necessitates event-centric Probability Simulations however rudimentary they may be. This is one more reason why an Individual Trader takes value from Professional observers in the market such as Brokers and their Simulation Models led commentaries.
5. Market timing is the key to success in Commodities Trading. Never casually walk into a buy or sell in an unplanned manner. Planning your Entry and Exit points are vital parts of trading and investing. To do this effectively, the trader must be aware of the bigger picture always.
6. Limitless potential profit also holds hand with limitless potential for losses. A Smart Trader would always base his strategy around a Bracket Order in mind, which entails limiting the downside through a ‘Stop-Loss’ based on his Risk tolerance. Simultaneously, he would have in mind a ‘Take-Profit’ level as well, to book his gains.
7. Never underestimate the importance of Post Trading Analysis. Track your Successes and Failures with equanimity. Simply put, it’s never wrong to repeat your good trades in similar circumstances and it is implicit that you have to identify your weaknesses and work to correct them. Trading records are therefore essential, to look for repetitive patterns both in success and failure.
8. Understand the Risk involved in your trades. For example, an Investor with exposures in oil can face issues in times of global sanctions or political problems in the country monopolising oil wells.
9. Invest in multiple commodities – Keeping all your eggs in one basket will do you more harm than good and Diversification of your Portfolio is crucial, especially in volatile markets. Tracking a single commodity price for the underlying, is really like the ‘eggs in one basket’ situation. Investing in multiple commodities, not only takes advantage of diversification benefits, but also helps reap the potential safeguards needed in this highly leveraged market, through reduction of risk as well as Inflation linked devaluation of money.
10. Investing in Commodities through a Commodity fund would be a good idea for an Investor during his initial forays into this market, which helps mute impact of volatility to a appreciable extent, but the investment decisions become proprietorial to the Fund Manager and leaves the investor an ‘arms-length’ observer. However, the experienced investor may feel the need to tap the market, as a direct participant.
Trading in Commodity options and futures are real Risk Management Tools for small investors when handled strategically! But we must remember that…
‘The difference between a successful and unsuccessful trader is that the latter either never learns the lessons that failure presents, or s/he continues to repeat the same mistakes.’
Let’s gain insight from our 10-fold proven tips and toe the line of the former and not the latter!
