Trading commodities or commodities trading (as the Anglo-Saxons say) is really easier than you might think. But no online investment can be safe if you don't first study the rules of the market a little.
The simplest way to do commodity trading online is to open an account with a recognized broker that offers access to the commodity market, place an order and follow its trend.
Better still, if the broker offers its users forex trading and cfd trading, to diversify its portfolio. Do all these terms seem Arabic to you? Then there are a few factors you need to consider before entering the world of general trading.
How to choose a broker to exchange raw materials?
Today, buying commodities online is really very simple and you do it either through futures or ETFs. There are many online brokers that offer trading apps to carry out these two operations, but not only. Since many also allow bitcoin trading, for example.
Do you need to open an account with a broker who specializes in commodities to be successful? No. Rather, the choice of the broker must be made based on the features it offers, extra functionality and tools for day trading.
Some brokers are particularly suitable for beginners because they offer low fees, great customer support, many markets to trade on, and more. And it is on the basis of these characteristics that one should choose.
Another very important aspect in choosing is to check if the broker offers a trading course or a trading library to consult for free to learn more about the world of commodity trading.
Main features to look for in a broker:
- safety, regulation and reliability
- professional and responsive customer service
- easy to use platform
- tools to learn more about commodity trading
What do I need to open an account?
Any regulated commodity trading broker asks its users for some documentation before they can activate their account.
Some also ask to fill in online forms, to learn more about the users who have applied for registration, such as understanding the risk associated with commodity trading and the ability to disclose the user's financial information.
What information can brokers request from users? Here is a short list of the most common:
- income information
- net assets
But why do brokers require disclosure of this information? Simple, because commodity trading is a financial activity that operates with high leverage. This means that even an operator with a small capital can make large investments.
This carries the risk that the user may lose more than he originally invested. And who loses the money? The answer is quite simple to find ...
High net worth, online trading experience and sufficient income are key requirements for a broker to approve your commodity trading application on their platform.
All of this information helps the broker decide whether a potential client offers acceptable risk to trade on the commodities trading app and is suitable for such a business.
What to do before starting commodity trading
Once you have chosen your preferred broker for commodity trading and more, such as cryptocurrency trading or copy trading, the next step is to deposit your investment capital.
Although many brokers allow users to invest a very low minimum capital, starting from 100 euros, the amount must be at the complete discretion of the operator, who must also know that that capital can be completely burned with a few wrong operations.
For this reason, before starting commodity trading for real money, we recommend that you study an effective strategy. How to trade successfully? You can test your strategies, for example, on an automatic trading demo account.
Simulations and training allow the operator to familiarize himself with the platform, with opening and closing orders, setting limits and so on.
The simulation can also help the operator to manage his emotions, which help him to constantly follow only the strategy studied at the table, even in the worst moments.
When starting commodity trading, it is important to do so wisely and avoid oversizing. You start with small positions, settling for small profits or losses.
If you place too many trades early on, you may find yourself overwhelmed by the amount of data to follow and this increases your chances of failing and losing money. Caution is the key word.
If you are not a real expert and you are still wondering but what is trading? Then we recommend that you also take a look at copy trading, which consists of copying what professional traders do.
There are two brokers in particular that we would like to recommend to all newcomers: eToro and Plus500. They are both regulated brokers and therefore safe and reliable. Both offer the possibility to start with a low minimum investment, but also to do it with demo accounts to put their strategies into practice.
Tips for new traders interested in commodity trading
Understanding the options and futures market is important for commodity trading the right way. These two assets are derivatives of real commodities. A derivative is nothing more than a security that is based on an underlying asset, commodities, in this case.
For this reason, it is important to understand how the supply / demand process works for those commodities and derivatives that are traded. Online you can find a lot of information about commodity trading, even for free.
Government agencies publish useful and free information regularly. For the energy markets, the American Petroleum Institute and the Energy Information Administration are two real points of reference. While the United States Department of Agriculture publishes reports related to the grain market.
Aside from all this, it is also useful to be successful with commodity trading to understand what factors change the relationship between supply and demand.
For example, learning to understand the crude oil inventory reports that the US government's Energy Information Administration publishes each week is a starting point if you want to trade oil futures.
Commodity markets are very volatile and therefore high risk. These instruments operate with very high financial levers. And while the earning opportunities are high, the potential losses are just as high.
Future trading and margin calls
To trade futures you must make a deposit or margin in good faith. As mentioned above, commodities are a very volatile market and therefore margin calls are likely to require extra capital - if the value of your investment falls excessively, the broker may initiate a margin call.
A margin call occurs when the broker asks the trader to put more capital into their account, because the values have fallen below the minimum required balance.
Trading on margin is very risky and can also be very expensive. If you don't have enough capital to support your finances, you may need to borrow more money every time. Many traders have lost money trading on margin.
How to approach commodity trading
Precautions must be taken to approach commodity trading. First, study and do your homework. Don't think you can be successful in the world of commodity trading without knowing anything or by betting on a broker like you would at any online casino.
Although it is possible to make a lot of money with commodity trading, it is also possible to face huge losses due to the high financial levers offered by brokers.
Thanks to technological improvements, trading online is now much easier and faster. But remember: trading is a real job, not a pastime. Approach with discipline, strategy and precision. Mistakes can cost a lot of chance, so it continues to fly low, at least in the early days.
The most successful commodity traders are masters of efficiency. Becoming a real expert in online trading requires a high level of competence, which can only come from study and hard work.
Finally, as commodity trading requires the use of very high levers and works on margin, it is necessary to do diligent research and try to better understand the rules and effects of trading on margin.
You need to understand exactly how much money you are likely to lose in a given environment. Furthermore, a good trader must also know how to minimize risk while trading commodities and spend many hours practicing with demo accounts, before putting their money at risk with live trading.