What is Commodities Trading?

Commodities trading is one of the most popular industries in the financial world. Nowadays, most trading platforms and brokers are offering users the possibility of trading commodities. Commodity prices fluctuate and investors use these fluctuations to place buy and sell orders. 

This guide will be all about commodities trading, what are commodities, how they work and how you can make money trading commodities. 

Disclaimer: all the information shared by AltSignals and its writers should not be considered investment advice. The information shared in this post and all the other articles should be considered for educational purposes only. We are not financial advisors and we are not responsible for any investment decision you make following this post. 

What are Commodities?

Commodities are basic goods that are used in a wide range of industries and economic activities. This type of asset can be used for different reasons, including portfolio diversification, speculation or hedging. 

As we know, with the expansion of different trading platforms, commodities trading became a very popular activity among financial enthusiasts. Nowadays, almost every single broker in the market is offering users commodities trading. 

How do I Start Trading Commodities?

If you want to start trading commodities, then you need to search for a broker that supports commodities. Depending on the region you are there would be different brokers offering commodities trading.

Once you find the platform you were looking for, you have to create an account. This can take just a few minutes. However, you should make sure you can deposit and withdraw money. In this way, you can fund your account and also withdraw them as soon as you make money. 

If you are an investor that wants to diversify his portfolio, then you should search for a platform that would also allow you to trade other assets. For example, it could be a good idea to have a broker that supports stock trading, options trading and also commodities. 

Can you make money trading commodities?

You can make money trading commodities. But you can also lose money with this activity. This is why it is very important to know that there are risks involved in commodities trading. The more money we use to trade, the larger our risk would be. 

Commodities are assets with a volatile price. Their price moves up and down according to market sentiment and other fundamental factors. If you want to make money trading commodities, you should then follow a clear trading strategy.

One of the ways to trade commodities is by using a day trading strategy. You can easily make money with daily fluctuations. However, a more suited strategy would be to do swing trading.

With day trading, you trade daily price fluctuations, but with swing trades, you open positions for longer periods of time. Swing traders could open positions for just a few days and for some weeks. This gives time for the trend to mature.  

Position trading is also a strategy that can be used to trade commodities. With it, you would open a position for the long term and wait for the macro trend to extend gains. 

What does it mean to trade commodities?

Trading commodities means that you will have access to one of the most liquid markets and where you can trade a wide range of assets. Commodities would also give you exposure to different fundamental things that you should consider.

Although it is always important to do technical trading and analysis, combining both technical and fundamental analysis is definitely important for traders. Thus, it means that you should follow the fundamental aspects affecting the commodities markets. 

What are examples of commodities?

There are different types of commodities you can trade in the market. We take into consideration the most popular categories, which include agricultural products, energy, metals, or livestock. 

If you are trading metals, then you are trading gold, silver, palladium, and many other precious metals that could be extracted from the ground. If instead, you trade agricultural products, then we think of soy, wheat, corn, oats or rice. Dry and rainy periods could affect the price of these commodities. You should check the weather in the most important regions to understand how this could affect commodity prices. 

If instead, you trade energy products, then we should focus on oil or natural gas. These two are usually good to understand the activity level of the entire economy. Moreover, you should focus on possible geopolitical issues that could move the price of these commodities.