easyMarkets’ 5 Golden Rules of trading commodities for beginners
From food to fuel, commodities are the lifeblood of the global marketplace. They play an essential role in daily life and yet until just a few years ago very few people outside of the financial industry had ever considered trading commodities on the open market. Becoming a commodities trader seemed like a daunting prospect and one that was restricted to those willing to spend every waking hour in a skyscraper in the city.
Now, thanks to the power of the internet, accessing commodities and learning everything there is to know about the market has never been easier.
Nikolas Xenofontos, Director of Risk Management at leading online trading services provider easyMarkets, explains,
“With the evolution of CFD (contract for difference) trading, and the growth of online trading platforms, investing in commodities is now accessible to all. An increasing number of individuals are learning to trade commodities and appreciating how exciting, and how profitable, it can be.
“However, you do need to follow some basic rules in order to give yourself the best possible chance of success. It’s like any job or hobby really – the more you put into it, the more you are likely to get out of it!”
For that reason, the easyMarkets team has put together its five golden rules of trading commodities for beginners, so that all those with an interest in doing so can know where to start.
The easyMarkets 5 Golden Rules of trading commodities for beginners
1. Find the best commodity broker
The internet is awash with brokers. To find a good, trusted one, narrow your search down to a broker that: (1) has been in business for more than 10 years, (2) is regulated and (3) offers CFD trading. The first two are self-explanatory. The third one is explained in more detail below.
2. Trade CFDs
CFD stands for contract for difference, which is essentially a contract between you and a broker that says both parties will exchange the cash difference between the opening and closing price of a commodity. This makes commodity trading so much easier because you no longer have to pick up that bushel of wheat or gallon of oil you purchased in the market. You just profit from the price difference in cash. Only a few online platforms offer CFD commodities trading so you may need to shop around.
3. Study the markets
Commodity prices are influenced by a wide array of factors, ranging from supply and demand to government actions and even the weather. When trading anything, studying the financial news and checking price charts are important – and this is particularly so with commodities.
4. Diversify your trading
Diversification is a term you’ve probably come across quite a bit in researching the financial markets. Let us summarize it quickly for you: diversification is the process of using several investments in a portfolio in order to reduce your risk exposure to any one particular asset. In other words, don’t put all your eggs in one basket! Be willing to trade precious metals, energy products and agricultural goods. By doing so, you optimise your profit opportunities and ensure you’re not overly exposed to just one segment of the market.
5. Trend is your friend
This is a well-worn adage in the financial markets. What is basically means is that if a market is moving in a particular direction (being bought or sold off), then following the trend may be wise. Unless you have very good reasons to go against the trend, in which case you might be in for a windfall!
As a commodity trader, you should be constantly on the lookout for a trend, regardless of whether it’s up or down. In trading, a simple trend is defined (by Seery Futures) as a commodity reaching a 20-day high or low. If you apply sound money management rules, like limiting your maximum loss to a few percentage points, you may be able to ride the trend to profitability.
For further details visit www.easymarkets.com, email pr@easymarkets.com or call +44 203 1500 748.
Risk warning: Forward Rate Agreements, Options and CFDs (OTC Trading) are leveraged products that carry a substantial risk of loss up to your invested capital and may not be suitable for everyone. Please ensure that you understand fully the risks involved and do not invest money you cannot afford to lose. Our group of companies through its subsidiaries is licensed by the Cyprus Securities & Exchange Commission (Easy Forex Trading Ltd- CySEC, License Number 079/07), which has been passported in the European Union through the MiFID Directive and in Australia by ASIC (Easy Markets Pty Ltd -AFS license No. 246566).