Four Tips for Successful Commodity Trading

By: Hillel Fuld
One looking to invest capital in the world’s markets has a few options. There is always the traditional stocks and bonds, the Forex market, and a market that has been around since the beginning of time, the commodity market.

None of the above markets are risk free, there is no such thing. They all come with a high risk of loss. In fact, if you are trading Forex and have not lost money, you are doing something wrong. Same goes for the commodity market.

The commodity market is as safe a bet as any other, with the world becoming more and more dependant on the various resources. That dependency is not going anywhere anytime soon, in fact, the only thing that is changing is the scarcity at which these commodities are available. This of course means a raise in demand, a decrease in supply, and thereby, a bigger return on your investment in the commodity market.

However, trading the commodity market is a very risky business, and requires patience, motivation, and commitment on the part of the trader. If you are looking for a quick buck, look somewhere else. You might make a few, but in the big picture, your losses are bound to overshadow your profits, unless you let your profits run in the commodity market.

In order to achieve your goals as in the commodity market, there are some basic steps you must adhere to. Here are some of the basic principles to implement in your commodity trading:

1: Make a Plan and Stick to It: Before putting a cent into the commodity market, decide who you are as a trader, what you wish to accomplish, and how you are going to get from here to there. Put a plan in place, stick to that plan, no matter how badly you want to break it. That means letting your profits run, taking your losses and not counting on a trend reversal, and many other practices that might be painful at the time, but will advance you in the direction of your commodity trading goals.

2: Get Ready to Lose: I know that sounds harsh, but not as harsh as that initial shock of devastating loss in the commodity market. No commodities trader can tell you they never lost. If they do, they are lying. It is as simple as that. The name of the game is making sure your gains overpower your losses. If you cannot cope financially or emotionally with losses, you need to look for a new profession. By the very essence of trading this volatile market, you are predefined to lose some and win some. No one can possibly know what tomorrow will bring for gold trading, oil, or gas. Make sure to implement your plan, and take your losses “like a man”. Just make sure your profits are part of the equation too.

3: Buy Funds or ETFs: The cheapest and most intelligent way to buy commodities in the commodity market is through funds or ETFs. What these do is assist you in purchasing an assortment of natural resources futures contracts or alternatively, holds stocks of companies that make or process the raw materials.

4: Don’t Place your Eggs in One Basket: A general principle in investments is not to put your entire portfolio on one currency, commodity, or stock. Spread out the wealth. Invest in more than one commodity, whether using an ETF or independently, make sure that if the value of the commodity market, you still have an account to continue trading.

The commodity market is not much different on this front than other markets. Just like in Forex trading, a lot of common sense and responsible trading is what is needed to succeed.