As the complexity of the market expands, the need for a good hedging tool becomes important. Commodity markets are increasing enormously traders are starting to enter the trading market. Commodity market has determined economies of different first-class countries more than the past few years. The most important thing is strategy in case of commodities. Commodity traders require a right strategy and that is the most basic and important thing that commodity traders need to understand.
A good strategy in commodities will help you to make profit. It will be helpful for you to make more profits. If you make a decision to invest in the currency trading, commodity or stock trading then it is necessary to know that the production can be unsafe. Here are some basic approaches to commodities that can help you in the long run to be profitable in commodities.
Know the jargons of commodities; they are slightly different
What do we understand by the basic lingo or jargon of commodity markets? It includes the way you place an order, the way there is margining done and the way you actually go out and trade in the market. In the commodity market there is speculation, which is pure trading on spreads. There is also hedging where corporates manage risk by hedging using futures. It is important for beginners to know the language that used in commodity trading. The language level is one of the difficult areas for traders. When you familiar with the language, it provides you lots of knowledge about commodity, commodity tips, increasing number of market concepts and change nature of economic transactions. You need to understand what other commodity traders are doing and the technical terms pertaining to commodities. You can find that in the website of NCDEX or MCX which carry detailed tutorials on this subject.
Don’t trade too many commodities; restrict to a few only
Is there any expertise that you have in commodities? For example, it is hard to track and build expertise in too many commodities, so stick to just a handful. There are many types of commodity trading so you are able to select from your preferred fields according to the commodity trading markets. You need to improve yourself according to trading choices because understanding the inner working market depends on your ability to focus in a particular area of expertise. When you trade a commodity, you need to understand in-depth the nuances of the commodity, its demand and supply etc.
Commodity trading is best learnt from peers and competitors
Don’t have to ape what peers are doing, but it adds value to keep a tab. You should be familiar with how your competitors earn from the equivalent market or other markets. It is necessary to find out what others traders earn, what commodities tips that they follow and some other things that can be cost-effective to you. If not anything else, this will at least broaden your horizons and give you more insights into the market. Also look at how others place stop losses, how they set profit targets etc. While it pays to use your knowledge and the familiarity of other traders, it is very important to look for the support of commodity discount brokers.
Select the exchange where there is ample liquidity and depth
You can trade on the MCX and NCDEX. Soon you will also be able to trade on the BSE and NSE once they also launch commodities in full earnest. The idea is to focus on the exchange which gives breadth and depth. MCX is strong in non-agri commodities while NCDEX is strong in agri commodities. Prefer exchanges with a track record in the commodity. It is significant for a learner in commodity trading to understand some facts about the well-liked national level exchanges that is available for commodity trading in the India. Breadth and depth are the two important things to check in commodity exchanges.
Decide how much you are going to risk and how much you are willing to lose
The last step is to zero in on the right investment strategy for trading. When starting initial trading, you don’t have to put all your assets. It is suggested to recognize the market before providing your whole promise. As a first step start trading in small lots and then increase gradually. Also, use profits earned to take on higher risk in commodity trading. Therefore, time and money is an essential stage for the commodity trading. If you do it perfectly, then returns will be relatively higher.
Commodity trading is for the short term and hence discipline counts a lot. We are talking about discipline in terms of stop losses, overall losses, profit targets etc. Make it a point to constant and continuously review your strategies and see how they are working for you. That is a good way to start off!