How to start making money from commodity trading
(STL.News) Do you imagine yourself as a powerful oil or gold trader? These are positive, and at the same time, absolutely real dreams. The world’s most sought-after goods and raw materials will now become tools for your earnings. Explore the opportunities that this giant and one of the oldest markets provides, understand its laws, and start earning today.
Commodity Market Definition
A commodity market is a platform where certain groups of goods and raw materials are sold and bought. The most popular commodities include oil, gas, energy, coffee, rice, grain, cotton, sugar, and others. More globally, the resource market can be divided into metals, energy, and food. According to statistics, 70 types of goods are traded on the commodity exchange. And about 30% of world trade is concentrated in this market.
The first commodity exchanges arose in ancient Greece and Rome. Their activity was spontaneous. From century to century, exchanges have evolved. And the market served as a meeting place for consumers and producers. Today, commodity exchanges are more a tool for finance speculative operations. In such cases, the goods are not physically delivered. They are traded in contracts, and people earn on the price difference.
Thus, the buyer and seller do not transfer the subject of purchase, but the right to own it. Market experts say that in the 21st century, only 1% of transactions end with the actual delivery of goods. Everything else is speculative operations
Features of Trade on the Commodity Exchange
Due to a large number of speculators, it is difficult to predict the behavior of prices in this market. Therefore, financial analysts recommend investing in contracts on the commodity exchange from 15 to 25% of the investment portfolio that should also include copy trading as a strategy for trading.
If you are trading in the global market for grain, cotton, coffee, and other agricultural products, be sure to consider seasonal factors. At harvest time, products are cheap. Conversely, closer to the time of sowing, it can be sold profitably.
In addition to direct purchase and sale of resources, companies insure themselves against a possible increase in product prices. Therefore, on the commodity market, such trading tools as futures and options appeared. They have become not just a method of risk insurance but also another way of speculative earnings.
A futures exchange is a type of contract that provides an obligation to buy or sell a product in the future at a pre-set price. Experts consider this to be perfect for copy trading. An option is a similar contract, but it does not provide an obligation, but the right to do so. In the case of an option, the buyer risks only the value of the option and not the entire contract.
What to Consider When Trading in the Commodity Market
- Supply and demand on the commodity exchange depend on the following factors:
- Seasonality and climatic features of the year, especially for agricultural products.
- The political and economic condition of the regions where raw materials are mined. Therefore, make sure to check related news.
- Mineral reserves. Follow the information on the stocks of raw materials and the laws of the countries in which these raw materials are mined. For example, some countries limit oil production to preserve its reserves. Thus, after the extraction of the annual volume, the price of the resource will go up since there will be a shortage.
Scientific and technical progress. For example, when electric cars are launched into mass production, oil demand falls.
Follow the above recommendations and start earning with commodity trading.