Commodities are products that are used in everyday life, such as food (pulses, spices) or metals (aluminum, steel). Trading of these things in the exchange market is known as commodity trading.
Quite popular in India, commodity trading is done mostly through future contracts (where the investor agrees to buy the commodity at an agreed price at a future date) to avoid the risk of price inflation or deflation. Future trading tends to provide higher returns if traded efficiently while the downside is that they are also very volatile in nature, highly liquid and unpredictable. Another way is option trading where you agree to buy or sell the commodity on a specified date.
But fear not, if you really want to learn commodity trading, you first need to do research, read and understand the basics, watch some tutorials and videos and once you master these you can learn technical analysis, which will further help you to make wiser decisions.
In the beginning, just try to understand the market, keep an eye on your favourite commodities, create a watchlist and take calls on prices going up or down without investing. Once you are able to predict well, you can start trading but remember to trade with low amounts. Once you master the art of commodity trading, you can go for bigger risks.
Remember some tips while self-learning the tricks of commodity trading –
- Always diversify your portfolio into various sectors such as agriculture and energy.
- Understand and follow the market.
- Always research and analyse everything about commodities and then invest.
- Keep your emotions and patience level in check.
While it’s good to self-learn things, do take note that there is no harm in taking expert advice while in doubt.
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