Commodity trading is the process of buying and selling raw or primary products. Commodity trading is much more complex than buying and selling stock, and uses future contracts and forward contracts. The most common items traded through commodity trading are oil, gold, and silver. Commodity trading is done through over 700 worldwide global futures markets, but like buying and selling stock, it can be done through a broker as well. Commodity trading is much less common than trading stocks and other securities, but it can still be done by pretty much anyone. This article will give you steps and hints on how to do commodity trading.
The first step in how to do commodity trading is to get an understanding of how commodity trading works. Before trading, the investor should understand all pertinent language regarding commodity trading and should develop some sort of trading strategy. Following the commodities markets for a few months prior to trading actual money will allow the investor to develop a strategy and learn many of the quirks involved with commodity trading.
After learning more about commodity trading and developing a strategy, the next step in how to do commodity trading is to select a commodity trading broker. There are three types of commodity trading brokers which are self directed trading brokers, broker assisted trading brokers, and managed future brokers.
Self directed trading brokers are only recommended for well experienced commodities traders. Self directed trading brokers do little more than place the investor’s order, and often do so without any actual communication. Orders placed through self directed trading brokers are frequently completed online and almost no guidance or suggestions are given by the broker. These types of brokers are the cheapest and normally only charge a fee for every trade placed.
A broker assisted trading broker is recommended for commodity traders with an intermediate level of experience. These brokers will often take the investor’s suggestions into consideration when placing their orders, but will also provide guidance and trading suggestions to their investors. Since these brokers provide more guidance than self directed trading brokers, they cost slightly more money.
The last type of commodity trading broker is a managed future broker. A managed future broker acts largely as a financial advisor and handles an investor’s portfolio with little or no guidance from the investor. The advisors are often paid an annual fee of about 1% of the investor’s portfolio. Since these brokers handle money directly, it is best to ensure they have a good reputation and are fully licensed to be a commodities trading broker.