Things You Need To Know About The Commodities Market

Commodities are a part of our everyday lives. We come into contact with metal, gold, gas, and food on a regular basis. The demand for most commodities means the markets consistently increase in size, making them a safe bet for a new business owner or investor.

However, people who are unfamiliar with the commodities market might be put off by a lack of knowledge, so here are our top tips to help you succeed in commodities.

Commodities’ trading is open to everyone

Absolutely anyone can start trading commodities, and with today’s technology, it’s easier than ever. There are a variety of resources designed to help the new and experienced trader alike. You can keep up to date with all the latest news and access free futures charts amongst other things. The more you know and the more resources you use, the more successful you are likely to be.

Not all commodities are tradable

It’s important to gain a good understanding of the commodity market you are interested in operating in. As of 2016, the following commodities cannot be traded: water, electricity, diamonds, tomatoes, lemons, potatoes, carbon dioxide, and eggs.

However, there are still plenty of commodities to choose from. The main four categories are metal, energy, livestock and meat, and agriculture. The metals commonly traded are gold, silver, platinum, and copper. The energy category includes crude oil, heating oil, gasoline, and natural gas. The agriculture category includes sugar, corn, cotton, soybeans, coffee, cocoa, rice, and wheat.

Some of these commodities have a far greater impact on our economy than others. All of the commodities that are natural resources are generally known as hard commodities, while livestock and agricultural commodities are referred to as soft commodities.

Regulatory considerations

Most commodities have certain trading standards in place. While the majority of this regulation is found in the food market, the regulations vary depending on the region you’re trading in.

Trading futures

Futures is a term used to indicate when a commercial or private speculator agrees to buy or sell a commodity at an agreed price at some point in the future. The contract to sell or buy at this predetermined price can be any distance in the future, from weeks to years.

This can help both individuals and traders to ensure everyone benefits in the future and market fluctuations do not impact the budgeting for raw materials.

Options

When you agree to take an option on a commodity, you are creating a contract that says you have the right to buy or sell at an agreed price within a certain timeframe. Although this is an agreement, you are not obligated to fulfill it, hence the name.

Company or commodity?

The size of the global commodities market makes many of the larger companies operating within it desirable investment opportunities. Rather than investing in the commodity itself, you can opt to invest in a company that produces the commodity, such as an oil or mining company.

Have patience

It’s very hard to make a fortune overnight when trading commodities. It’s far wiser to spend time learning the market, watching trends, reading stories about other traders or situations that affected commodities.