An Introduction To Trade in Commodities
Let’s begin with the definition of commodities trading first before venturing into how to invest in commodities.
When it comes to the trading market, there are many investment options available. Currently, the investment market is very diversified and the share market is not the only channel to create wealth. Investors can also invest in international markets, Forex, Futures, Commodities and so on.
Today our main focus is on Commodities Market, another investment option which refers to exchange commodities in the market. The process of exchanging commodities is termed as Commodities Trading.
Commodities are types of product that are commonly used and traded. Here, we emphasized the different between commodities and products. Products are real tradable goods, while commodities are not goods or physical products, but just a paper-contract binding that commodity without having to buy or sell the ACTUAL commodity.
Commodities contracts are agreements to buy or sell an asset based on a specified quality and quantity at a specific date, with the price agreed upon at the time of the dealing. Commodities investment has an expiration date, but you don’t have to hold the contract until it expires; you can cancel it at anytime.
In the market, the most commonly traded commodities are agricultural products (such as: corn, cotton, soybean, wheat, etc.), precious metals (gold, silver …), natural resources (natural gas, oil, coal …) and others.
The operating principle of commodities is that, if you are expecting the commodities to rise in price in the future, then you ‘go long’, and sell high once the price goes up to make a profit. On the other hand, if the price drops, then you would incurred losses. You can sell the commodity contract if you think the price would go down. If the price moves in the right direction, you make profit; if not, you lose.
The benefits of commodities trading is that, trader can make a profit on the price movement of a particular commodity to either go up or down. Investors can take advantage by speculating on the commodities, hedge on it and also leveraging; subject to mastering a winning investment strategy.
Commodities investment can bring you splendid returns, but can also dissipate your money faster if you make a misjudgment!
In investment, investors should have the right investment attitude and not harbour greed as it can lead to wrong investment decisions; leading to gambling.
Investing using the right method can bring success, while gambling can lead to losing money.
“The formula to get rich: Do not gamble, just invest.” – From the best-selling book 《Creating Wealth In Stock market》