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Understanding The Ropes of Commodities Trading

The commodities market is one of the oldest trading grounds in the world. In the earlier times, the producers of commodities such as grains would trade with consumers. The same concept continues today except that it is much more sophisticated. The main aim of such trading is to make the maximum profit when the prices of the commodities fluctuate. Speculators and day traders are the ones that largely look at commodity trading.

The commodities market is also known as the futures market with a great deal of trading being down based on future shares. But the main issue that crops up here is that you need to buy majorly into commodities futures contract in order to be able to get an exposure as well as foothold among several others in the same category. This can be an expensive affair. The other way to go about it is to buy shares that directly relate to the company that is making the product. This will bring you closer to the management and help you get a clear understanding of how the company functions.

Off late, contract differences are also being made available for commodities. Having this option gives the trader an upper hand and also provides for a stable monetary vehicle that is needed for speculative work. When you go through or are a CFD broker, there are several common global commodity markets you can look into like that of gold and silver, the vast energy markets like oil and natural gas, those related to base metals like copper, as well as agricultural commodities like cocoa, wood or even wheat. There are a few CFDs that are largely based on spot and most on futures market. These have a great deal of underlying value.

What this essentially means is that there will be an expiry date that comes with each contract. What this expiry date is will vary from one contract to another. It will be based on the settlement date of any associated futures contract.

CFD brokers handle this particular situation in two different ways. The first is that the broker will allow for an automatic rollover. This then moves on to the next monthly contract when the current underlying futures contract comes to an end. The other option is that he will go in for a cash based settlement. This he may want to with an offer to take over the following month’s contract manually.

Best Commodities Trading Strategies

Commodities trading strategies help you to decide when to sell or buy commodities. It is desirable to know about some strategies that are deployed by successful traders of commodities trading. While reading financial newsletters you may come across tips that will keep you updated. A well thought out strategy lets you know when to sell or buy to maximize profit and limit losses. Market fundamentals and technical analysis form the basis of strategies for commodities trading. Depending on personal objectives and requirements a trader may select appropriate strategy for commodities trading.

Commodities trading strategies are primarily two types:

Range Trading

  • Trading within a range means buying a commodity near the bottom of a range and selling it at the high point of range.

  • Bottom point is called “support” and the high point is called “resistance”.

  • Whenever any commodity has experienced a lot of selling in the market it hovers around the bottom of the support range. In such situations the commodity is said to be ‘oversold’.

  • On the contrary, a commodity may be experiencing frenzied buying to reach near the resistance level. At this point the commodity is said to be ‘overbought’.

  • Commodities trading strategy recommends you to “sell” a commodity that has reached the resistance and “buy” a commodity when it is around the “support”.

  • Support and resistance level of various ranges of a commodity are determined by various tools of technical analysis. There are different indicators that help to measure at what level a commodity is overbought or oversold. These indicators are Rate of Change, RSI, Stochastics and so on.

  • However, such strategy works well when there is no major trend in the market. In case the market gets oversold or overbought and a major downturn or uptrend is formed, this strategy should be employed with utmost caution.

Trading Breakouts

  • When a commodity breaks a particular resistance level and makes a new high, the commodities trading strategy recommends buying it.

  • Similarly when a commodity breaks the support level and hits a low then selling is advised.

  • New low and high of a commodity can be easily spotted from the technical charts. The peak of the curve denotes high and the low point indicates new low.

  • The commodities trading strategies follow a simple logic – market always forms new highs and lows. However, this is ideal when the commodity has a strong trend. When there is no definite trend this strategy is not very effective.

Other than these two types there is one strategy for experienced traders:

Trading on Fundamentals

Buying or selling of a commodity within a range or after positive or negative breakouts is supported by various technical parameters. Commodities trading is based on market fundamentals which are easily understood by experienced traders who have developed an instinct for trading. An experienced commodity trader may buy sugar futures on knowing that the production of sugarcane at Brazil has been low. In anticipation of the Gulf War an experienced trader may buy futures of crude oil. A new trader of commodities trading may be baffled with nuances of such strategy as there is no defined zone to buy or sell.

Currencies Are Important Commodities

The foreign exchange market is called Forex, it is the place where currencies are traded. As we know currencies are important commodities to live money this world. Currencies are essential to hold office exchanged in order to conduct foreign trade and business. Among all the markets the SPOT FX Trading, has always been the largest market as spot market is the underlying real asset that the forwards and futures markets are based on. With the introduction of electronic trading, the SPOT FX Trading, has observed a gigantic flow in activity.

The SPOT FX Trading, now exceeds the futures peddle as the favored trading market for individual investors besides speculators. Usually the passage to forex market means we are talking about the stain market. SPOT FX Trading, particularly is where currencies are bought and fascinated for per the current price. The price is determined by the lay upon and demand reflecting prevalent things eat up current act on rates, economic performance, local as in fact because international political situations and also hypothesis of the near performance of one currency against the other.

Thus, a deal finalized here is called as a spot deal. It is a bilateral transaction by which one shot party delivers an agreed-upon currency amount to the counter party and receives a specified digit of likewise currency at the agreed-upon war standard value. Unlike the spot market the FORWARDS FX Trading, conclude not trade actual currencies. Instead they deal in contracts that represent claims to a certain currency type, a specific price per unit and a future date for settlement. In case of the FORWARDS FX Trading, contracts are bought and affected OTC between two parties, who determine the terms of the agreement between themselves. Magnetism the FORWARDS FX Trading, are bought and sold based upon a standard size and settlement date on national commodities markets.

Nifty Options Are Must to be Pursued Before Investing on Any Financial Commodities And Assets

The sheer enthusiasm shown among investors on the impulsiveness of the share market will sweep you off your feet. However novice investors in this niche industry segment should aptly comprehend that merely relying on your senses to invest in a particular company might call upon stressful time and unbearable losses. In such milieus, opting for assistance of professional stock broking firms which proffer accurate and timely trading tips such as nifty tips, share tips, intraday trading tips, nifty option tips, etc. is highly advised. This stride will unquestionably hold out loads of support and backing in uplifting your familiarity and proficiency echelons, when it comes to the spontaneous and unpredictable share market operation.

In this article we will be putting some light on the angle as to how online stock brokerage firms can provide you assistance to profit from the uncertainties associated with this market place. For novices, let me specify what a stock market is first. But if you think that it is unfeasible on your part to leave your day job, your best bet should go along with nifty tips, nifty option tips, etc. proffered by professional stock brokerage firms. Some of the most pertaining reasons for populace to enter this market place are the promise of high returns in a relatively small time frame, not much financial load involve when investing and a lot more factors.

The frequency of scams, scandals and fraudulent schemes hitting the market place is a warning and you should steer clear of such facades the moment you sniff one. Thus the easiest way to gain is by subscribing to packages from a stock broker firm which specializes in nifty tips, option tips, etc. Then there is risk associated with virtually every investment of course of varying intensities, still the peril still exists. Alternatively you would have to indulge yourself in 24 x 7 watch and analysis of bear and bull movements to make sure you aptly elevate your experience and expertise levels.

It should not come to you as a surprise if novice investors incur losses on their investment as along with required finance, you also need fitting know how and acquaintance with the market functionalities and an inventive prudence. There are countless instances where high end individuals have utilized these nifty Option tips to make a killing. Always make sure that you are acquiring services from a reliable and trust worthy service provider who have an unrivalled repute in the market. The irregularities and instability of the stock market can wreck your bank balance even.

Forex Trading Vs. Commodities – See What You Could Be Missing

Foreign Currency Exchange (Forex) Trading involves determining whether a certain nation’s currency will go up or down compared to another major currency. When you trade in the Forex, you trade currency pairs: Pairs of national currencies which go up or down relative to each other.

When you trade Commodities (anything found naturally in nature or planted) you determine if the price of a certain commodity will go up or down based on whether you believe there will be a good growing season, increased mining prospects, a bad growing season, floods, drought, strikes etc. Mother Nature plays a much stronger role in trading commodities than it does in trading currency. And we all know “It’s not nice to fool Mother Nature”.

World Events:

As mentioned above, the constant change in weather patterns from year to year can play havoc on the commodities market. If it’s not the weather it could be strikes by miners, new mineral discoveries, dry holes, war or a multitude of different events, all of which can completely change the outlook for commodities. The possibility of good sized gains exists in the commodities market, but the risk of huge losses due to crop failures, etc. is also present. You have to be very careful if you play the commodities market. With currency, the Forex Market can also be affected by worldwide changes, but they typically have a less dramatic effect on your portfolio than what can occur with commodities. Overall the Forex market is the safer bet of the two.

Forex Trading Information Easy to Find:

Information about trading commodities can be fairly difficult to find, especially information which is free. There is an ample amount of information available, but a lot of it is costly to obtain. Forex information is much more accessible and most of it is free. You can also sign up for practice accounts at many Forex sites and actually try your hand at Forex trading without risking your capital. This makes for a great introduction to Forex Trading and lets you know what the possibilities are. These practice accounts in Forex Trading are typically not available in the commodities arena.

Hours of Operation:

The Forex Market is open 24 hours a day, five days a week. There is no other market open this long. If you trade the Forex, you have more opportunities and time to complete your trades and trade again than with commodities or any other market.

Liquidity – Ease of Buying and Selling:

Again, the Forex Market does the most volume as compared to all other markets. If it is going to be easy to buy and sell positions, Forex will be the easiest with all its volume.

Highly Predictable:

Commodity prices can jump all around the board depending on demand, weather, crop percentages planted, oil found or not found, etc. Forex markets are more predictable. Sure, currency prices can fluctuate and become volatile at times, but there is more of a pattern involved with Forex. There are more trends created in Forex that can be followed compared to the commodity market. This can make it easier to be consistent when trading the Forex.

Commission Free Trading and Instantaneous Order Execution:
Because the Forex Market is an open market and has no centralized trading floor, when you trade in the Forex, you don’t pay a middleman. In other words, you don’t pay a commission to trade. Money is made by institutions on the difference between the bid and ask price, but that occurs with any market. The fact that you don’t pay commissions or fees can really save you money in the long run.

Both Commodities Trading and Forex Trading can be exciting and profitable. It is up to the individual investor to decide which is best for their respective situation. With more information available for Forex Trading and with the information being free or very inexpensive, complete with free demo accounts available to practice trading, it’s hard to go wrong with Forex Trading.