There are numerous investment opportunities out there for those who have some extra cash in their hands and are looking to make some additional money over the short term or long term.
Commodities trading is just one of the many investment opportunities that you can pursue, and while it’s certainly risky endeavor, it’s also one that can turn out to be immensely profitable for you if you play your cards right.
Here are the top beginner tips for trading commodities:
This is one of the most commonly pieces of advice that is given for any kind of investment, and it’s equally applicable for commodities trading, which is why it bears repeating.
The logic behind diversifying your investment is simple: it gives you a financial cushion in the event that one of your investments fails, which will also cause the blow to your morale to not be as bad as well. Furthermore, diversifying your portfolio means that you will have more opportunities to make gains, because even if one commodity lowers in price another one very may well rise.
Focus On Market Direction vs. Prices
One of the risks with trading commodities is you are trading in a speculative market. In other words, you simply don’t know what’s going to happen, and thus all commodities trading is done based on speculation.
The best way to predict when the price of a particular commodity will rise is to pay attention to the direction of the market rather than the actual price of the commodity. Even if a commodity has been rising in price for the last few days, it could very well drop off a cliff in the next.
Conversely, if a commodity has been lowering in price lately but the market for that commodity looks bright, it may be a good time to invest now to make a nice short term profit.
Good News Does Not Always Mean Good Prices
What this means is that good news in the commodities industry does not always influence the prices of commodities positively. It may sound counter-intuitive, but it’s worth keeping in mind. In other words, just because there is a positive news story about a particular commodity does not always mean that commodity is going to rise in value.
Instead, remember the law of supply and demand. If a silver company finds a new silver mine, the price of the silver is likely to decrease while the shares of that company will increase.
Consider Trading ETF’s Instead Of Actual Commodities
ETF’s are exchange traded commodities that act like a mutual fund. They allow you to trade in the commodities market without trading actual commodities. Like stocks, you and buy and sell shares whenever you want.
Trading Commodities For Beginners
If you want to get into the world of trading commodities, you would also be wise to seek the help of a professional trader who can help you learn the ropes and give you advice on the best investment moves to make.