How to get into commodities trading without any risks and losses

The predecessor of the commodity exchange, in turn, is a regular market in which a variety of commodity values are exchanged. Over time, commodity-money relations have replaced commodity exchange. According to Google, after the first money became widespread, the transfer of goods was replaced by the purchase and sale of commodities. Those who have been engaged in commodity trading for a long time, say that, in some aspects, this activity is similar to stock trading.

The main principles of work

Since the inception of the commodity exchange, the main factor that has a crucial influence on the quotes of various goods is the current ratio of supply and demand for them.

Thus, the more buyers express a desire to purchase a product that is currently in short supply, the more its price increases. If a specific product wants to buy a small number of buyers, then such a product becomes too much on the market, and, consequently, its value falls.

Types of exchange available

There are several ways how to get into commodities trading. In the modern commodity market, there is a vast number of diverse stock exchanges. Among the most popular commodity exchange platforms, the following deserve special mention:

  • stock exchange of precious metals, which sells and purchases assets such as silver, gold, copper, and platinum;
  • fossil fuel exchange, on which the sale and purchase of coal, gas, and oil;
  • a food commodity exchange that sells and purchases assets such as coffee, sugar, and cereals.

With a competent approach, trading on all the exchanges mentioned above can bring a rather high income.

The rules of investments and trading

For many years, commodity trading has been overgrowing since clay tokens for livestock exchange appeared. In the past, there were various commodities that institutions and investors used to trade on the base of the contract. To study the rules of investment, you may use practical guides.

For example, commodity trading bonds allow traders to trade on price fluctuations without having to store and deliver the product.

A trader trades in contracts for the future delivery of goods. A trader pays a deal at a fixed price. If the price rises from the moment the financial agreement is acquired, then upon expiration of the contract, the trader will make a profit. If the price drops, the trader loses money.

However, even this type of trading can become extremely complicated if you research it profoundly. So, it can be hard work for the starters. Futures markets often have different:

  • delivery times;
  • transaction volumes;
  • rules for transactions;
  • trade standards and regulations of commodities trading.

This is one of the reasons why many traders experience trading CFDs on commodities.

The influence of supply on commodities

Those who have just started trading should know that the amount of goods is influenced by many data and factors, such as state intervention, weather, war, etc. For example, on August 6, 2018, U.S. President Donald Trump reintroduced economic sanctions against Iran. This meant that Iran, whose oil reserves are in fourth place in terms of volume in the world, received trade restrictions. It influenced the traders’ careers.

What was the result? Less oil was available in the market. But since demand has not changed, commercial companies and institutions have begun to buy up all available fuel. Such a “deficit” usually leads to higher prices.

Investments in commodities and demand

The demand for a product (oil, energy, coffee, or something else) is influenced by many factors, such as changes in consumer habits and economic conditions. For example, many people have changed their sugar consumption habits. People are actively trying to consume less sugar. If enough people come to this, then demand will decrease accordingly.

Commodity exchange in simple words for the very beginners

First of all, a few words about what a stock exchange is and how it differs from the notorious FOREX market, which many of you must be fed up with. However, here, you should immediately make a reservation.

We are talking about numerous dealing centers (DCs), which are now all as one, together with call themselves brokers (having no reason for this). Probably, the very concept of a dealing center is already so messed up and messed up (in terms of the reputation they have acquired over the past couple of decades) that everyone wants to disown it. But, as they say, do not call yourself, the essence will remain the same.

We will not go into details about the internal kitchen of these organizations (DCs), because We do not want to go far from the topic of this article unambiguously indicated in its heading. However, if you are interested in delving deeper into this issue, I highly recommend that you familiarize yourself with this material: “Forex Dealers.”

What does your luck depend on

Trading on the official exchange platform with a unique software through a broker differs from selling through a dealer or a DC, primarily in that the broker acts exclusively as an intermediary, and the dealer in most cases plays the role of a counterparty to all transactions with the client. In other words, the broker, unlike the dealer, is not interested in losing the client and his investments.

If you start to trade on the stock exchange, you can be sure that your success will be completely in your hands. That is, all the luck and defeat here will entirely depend on your talent and level of competence, and not on the level of honesty (or, rather, greed) of the intermediary.

Well, among other things, this action plan will be in your hands, due to which you will be able to avoid most of the mistakes that most newly-minted exchange players face and to save your funds.

Guidance step by step

Step one. Choose a broker

To select a broker, you can directly contact the site of the exchange platform on which you plan to trade and sign up this community.

Each market doesn’t need to choose a separate broker from a group since many of them provide trading services of good quality in each of the above areas. Remember that your broker must not violate privacy policy.

What you should pay attention to when choosing a broker is the working conditions that he can provide you with, and also his portfolio; study it from different sides. Here you need to consider the following main points:

  1. Broker remuneration. The broker, of course, does not work for free, but for a special commission. As a rule, the size of this commission is proportional to the amount of the transaction that you conclude, but there may be exceptions. Each broker has its conditions, so read them carefully and choose the most suitable for you;
  2. Trading terminals that a broker is ready to provide you. Do you know how to use them or you need additional time to master them. If this is relevant for you, then check the availability of mobile versions that allow you to trade from a tablet or smartphone;
  3. The quality of support services and customer information support. Clients’ support must work every day.

If you need a qualified assistance in matters related to the technical side of the trading process, then you can always get it in the support service. Also, many brokers, as an additional service, provide their clients with access to financial news broadcast by various news agencies (Reuters, Bloomberg, RBC, etc.)

Step Two. We get all the necessary

First of all, you need a computer, preferably not the one that all members of your family use, but a separate one that is designed exclusively for work. However, you can start with whatever is available, because a new computer is currently worth decent money, which at first it might be better to invest in trade. However, in any case, I strongly recommend that you take care of installing an excellent antivirus package and logging in to your desktop.

In the era of IT-technologies, a computer that is not connected to the Internet turns into a worthless pile of high-tech iron used by a couple of percent of its capabilities. To be able to work from your computer entirely, you need unlimited access to the Internet.

Moreover, for a trader, this access should be constant and as reliable as possible. So spend a little extra time and choose the right Internet service provider.

Having dealt with a computer and connecting to the Internet, let’s provide ourselves with the essential tool for a trader – a trading terminal.

A trading terminal is nothing more than a specialized computer program through which a trader communicates with the broker giving orders to open and close positions, and also monitors the current market position (through price charts and a news feed).

Almost all modern trading terminals are equipped with a basic package for conducting a technical analysis of price charts (a set of indicators and other specialized tools), and in addition they include such an indispensable tool as a strategy tester.

Strategy Tester – a program that is usually included in the composition of a trading terminal, allowing a trader to test his chosen trading strategy on historical data. Generally, for such testing, the procedure needs to be translated into a language that is easy to understand by the trading terminal (program code).

An important point. Be sure to pay attention to the fact that the installed trading terminal allows you to trade on the so-called demo account.

A demo account is usually called a virtual account opened with a broker and allows the trader to conduct training trading in real financial instruments, at actual prices, but at the expense of virtual money.

We will talk about the role of your home demo account below with you, but for now, we move on to the third step.

Step Three We master the basics of working with a trading terminal.

Why do you need a trading terminal that you do not know how to use? Therefore, first of all, after installing the trading terminal, begin to master its interface.

Connect it to a demo account and try to open and close positions, place Stop Loss and Take Profit orders, and if you have any questions, open the help section and look for answers.

This stage is one of the simplest and all that is required of you on it is to master all the basic techniques for working with the terminal, learn all the necessary “hotkeys” and ensure that all the required actions are performed automatically.

Also, you need to learn how to handle the charts of financial instruments. You should be able to perform at least such simple manipulations as drawing a trend line or setting an indicator. All this is easier to learn in practice, so to speak, by typing. And if necessary, of course, already use the help section, which is in every little-known trading terminal.

The fourth step. Learning the basics of market analysis

To know when to sell, when to buy, and when it is best to stay out of the market, you must master the basics of such disciplines as technical and fundamental analysis. Without knowledge of the basics of these types of study, there is nothing to think about more or less severe trading on the exchange of agricultural goods or crude oil.

Fundamental analysis of the market is based on the totality of economic factors, starting with international financial news of a global nature and ending with a review of the accounting reports of a single enterprise, whose shares are considered as a potential investment object.

The technical analysis of the market is entirely based on the history of price movement presented in the form of price charts.

That is, the same price models (patterns) with a high degree of probability lead to the same development of events (to increase or decrease in price, respectively).

Another postulate of technical analysis is: “The price chart takes everything into account.”

This means that all the information necessary for the analysis is already presented on the price chart and each event (which occurred earlier or even occurred at the current time) is already reflected in the current price behavior.

In stock trading, fundamental analysis tells the trader what to buy, and technical analysis tells him when to buy.

In the network, in the public domain, there is a mass of literature devoted to these two types of analysis. We will not list all the books for you, mention, for example, such as:

  • George Soros “Alchemy of Finance”;
  • Benjamin Graham “A Reasonable Investor”;
  • Alexey Gerasimenko “Financial reporting for managers and novice professionals.”
  • This is for fundamental analysis, and here is for technical analysis:
  • Jack Schwager “Technical Analysis. Full course “;
  • John Murphy, “Technical Analysis of Futures Markets: Theory and Practice.”

Step Five Trading system

All successful traders who make stable money on the exchange of physical commodities are united by one general rule: all of them correctly follow their trading systems. But haphazard trading is akin to piloting an aircraft without the necessary skills, sooner or later (usually still early), it crashes.

Please do not confuse the trading system with the trading strategy. The trading strategy, which is one of the components of the trading industries, indicates to the trader the possible moments for opening positions. And the trading system as a whole, in addition to determining entry points, should also include such nuances as:

  1. Money Management (money management);
  2. Psychological aspects of trading.

Money management includes such moments as:

  • Determining the possibility of entering a position based on Money Management considerations;
  • Determination of position size;
  • Determination of exit points from the position (if the trading strategy does not answer this question).

And the psychological aspect of the trading system should provide answers to questions such as, for example:

When to stop. As a result of several consecutive losing trades, the emotions of the trader can get out of control. For some, this line can be a series of dozens of losses in a row, and for someone, two are enough. Therefore, each trader must individually determine for himself how many losses he can sustain purely psychologically, include this rule in his trading system and strictly follow it along with all the others;

How much risk does not cause severe discomfort? Each person has his limit on the amount that he can risk without much worries about this. Therefore, if, for example, Money Management allows opening a position in such a volume that the risk on it will exceed this comfort limit, then the position size will need to be reduced.

Indeed, otherwise, psychological discomfort can lead to emotional imbalance and, as a result, to the adoption of rash decisions. And this, in turn, is fraught with such sad consequences as significant losses on the trading account.

As for trading strategies, there are a great many of them. For novice traders, I can recommend, for example, these three:

  1. The method of buying shares “Stupid Four”;
  2. The method of buying highly undervalued stocks;
  3. The method of purchasing sufficient shares.

However, we do not advise to be limited only to the proposed options. They can be taken as fundamental. In general, you should always strive to create a trading strategy directly for yourself, based on your observations.

Step Six. Trading on a demo account

Now, after you have studied the basics of market analysis and were able to build your trading system on their basis, it’s time to try it out in practice. For this purpose, you already have a trading terminal installed, in which a particular demo account is opened, which allows you to make offers and transactions without risk to your wallet.

Trading on a real-time demo account gives the trader that invaluable experience, thanks to which the foundation is laid for his entire future career. Some newcomers do not attach due importance to this stage and skip it after spending a couple of successful transactions. And meanwhile, it is here and now that you are given a unique chance not only to check your trading strategy in real-time but also to roll back (debug) all its nuances in practice.

  1. To get the most out of this stage, starting to trade on a demo account, you should adhere to the following basic rules:
  2. Opening a demo account, set the size of the deposit equal to the amount with which you plan to trade later on in real life;
  3. Take trading on a demo as seriously as if it were a real account. Keep entries in the diary of the trader and display all open positions in the transaction log;
  4. Strictly and strictly adhere to all the rules.

Commodity Trading Parameters

Commodities, as well as the Silver and Gold, necessarily imply the presence on the platform of many essential conditions necessary for an investor to secure specific amounts of income for himself. Professionals of the exchange for conducting trading on the principle under consideration recommend using the platform Dowmarkets.

After all, there you will find not just comfortable conditions for conducting universal trading! You can also use the most extensive range of car tools and support services for trading in a vast number of strategies and any of the available assets.

The main qualities of the platform, attracting an increasing number of investors, are:

  • Indicators integrated into the terminal system;
  • More than 80 different types of asset names, of course, including raw materials assets;
  • 87% – average profitability of contracts;
  • A set of tools for analyzing the graphic type;
  • Setting expiration periods for transactions from one minute or more;
  • No interruptions and freezes in the work of the platform and when opening lots;
  • $ 10 – starting trading depot, the size of the contracts – at least $ 1.

The conditions on the platform are not only comfortable but, one might say, ideal, which means that it will be easier for investors-clients of this company to get the highest financial result. Moreover – for the shortest time. After all, tenders are held here not only in the mode of high technical equipment but also in conditions of an increased level of security, which applies to personal data of customers and their financial transactions.

The main commodity assets

It is known that an essential asset of raw materials is OIL. Its, let’s say, “jerky” movement of quotes, often observed recently, can be very successfully used as a means of enrichment at the terminal. What determines this asset price behavior? – Most of it is influenced by important macroeconomic news, because they determine the size of demand. Logically, here you need to apply news trading! “Trading on the news” is simple in technical terms, and here is how it is done:

– News of a positive nature “propels” UP the commodity asset market, and negative news “pushes” it DOWN. It turns out that the signals of the “News Trading” strategy can be called, in fact, the statistics themselves, thanks to which when we publish them, we learn up or down we should trade.

Consider an example. If the hydrocarbon exchange clearly shows us that there is a glut in the supply area, then there will be a significant reduction in the value of this asset. We observe the same phenomenon with alerts about a decrease in the number of drilling rigs, as well as a decline in stocks in storage facilities.

Weekly information of this kind is posted online on particular sites, and traders, in turn, already know when the expected publication is due to take place. Also, we know about preliminary forecasts, and this makes it possible to conduct a qualitative analysis of the market with subsequent forecasting of the direction of the quotation movement on the chart.

Behavior of silver and gold

Financial instruments Silver and Gold behave quite differently from the assets of the crude oil. They show persistent price trend fluctuations in a small range. Their volatility may increase slightly, but only when critical events occur on the exchange. Such an event could be a significant change in the exchange rate of a considerable currency or an extremely “loud” statement by a famous politician. At these moments, news trading can be done here. Under normal circumstances, it makes sense to work on one of the trend indicator systems.

Gold Trading Tips

When trading gold, you must keep in mind the following:

1. It should be noted that not all brokers provide a service that allows traders to trade on the exchange using gold. Therefore, first of all, it is necessary to find a company that makes it possible to operate with gold in the market.

2. To work with gold, you need to choose the right strategy. Most often, especially for novice traders, the best option is gold trading on the news. The fact is that gold is very well predicted, and its price fluctuation is directly dependent on the changes in of the most popular currency pairs.

3. Trading through gold is carried out by buying futures contracts or slots, which significantly distinguish this method of trading from conventional trading. The main task of the trader in this case, as in the trading of currency pairs, is to predict the future value of this asset correctly.

4. When choosing gold as an asset, a trader needs to learn how to precisely measure the total amount of capital in his account with the volume of open transactions. The whole problem is that in this case, brokerage organizations provide traders with completely different margin conditions, in contrast to currency trading. In this regard, the speculator can no longer count on on a vast loan.

Conclusion

Some starters don’t know how to get into commodities trading, but it’s easy. With a demo account, you can practice the types of technical analysis, as well as other technical analysis tools, suitable for yourself.

The real right approach will not always be 100% successful. Trade losses are part of the process. That is why the ability to invest in commodities without risk through a demo account will help you develop the right trading mindset.

Posted: 2.07.2020 | Dawid Siłowacki
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