Over the course of history, commodities markets have impacted the economy, countries and its general public. There are proofs in history that shortages of vital commodities have led to wars and series of colonizations.
Especially for crude, which belongs to the energy commodity category, it is being watched by consumers, corporations and nations. Read on to learn the basics of commodities trading in this article.
What are the four categories of trading commodities?
The four categories are the following:
The commodities that belong in this group are heating oil, crude oil, gasoline and natural gas.
The ones included in this type are copper, platinum, gold and silver.
Livestock and Meat
In this cluster, it is comprised of lean hogs, live cattle, feeder cattle and even pork bellies.
Corn, soybeans, coffee, wheat, cocoa, rice, sugar and cotton belong in this grouping.
What is the role of commodities in the market?
Even back in the ancient civilizations, trading of several commodities has started. The strength of an empire is directly proportionate to their capability to produce, create and manage their commodities. Economic development is dependent on commodities.
How to turn commodities into opportunities?
This is completely different from investing in conventional securities like the stocks and bonds. Trading and investing in commodities is influenced by the technological advances, market demands and global economic development. As an investor, you have to review the patterns and statistics of livestock as well as disruptions of supply and even health alerts or diseases.
However, commodities are important as they are part of everyday life. You can consider commodities to diversify your investments.
Are commodities considered risky?
Commodities can be somehow risky since these can be affected by a series of events that are hard to predict or even impossible to forecast. Examples of such are unusual weather patterns, epidemics, natural and man-made disasters. You can still invest in commodities, yet it is recommended not to allocate more than 10 percent.
How can you start trading commodities online?
If you want to start trading commodities online, you have to remember that you need to choose a commodity broker. The most common and popular mode is through Futures. The most common commodities under this mode are crude oil, natural gas, gold and agricultural products like cattle and corn.
You can also consider stocks investment. Just make sure that you do enough research on a particular company you are eyeing for to see if it is a good investment or a good commodity play. Stocks are less complicated to buy, hold, trade and track.
For mutual and index funds, you are not allowed to invest openly in commodities. What you can do is to invest in stocks of commodity companies like energy, agriculture and even mining. The other one is through managed futures wherein a commodity pool operator (CPO) collects all of its investors’ money and invests it through futures contracts.
Before putting your hard-earned money to any investment, be sure to do in-depth research to know all the pros and cons. When a trader makes uninformed decisions or through speculations alone, profits and gains are becoming unclear.
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