It seems like a dream, whatever the answer to the question ‘how to trade commodities with little money may be. Not a lot of people will have the talent and the aptitude to actualize this. Is it possible to make a living out of trading commodities on the back of a tiny investment? We shall investigate!
Funds available
Is there enough money on you to allow commodity trading on a modest scale? Surprisingly, ambitious beginner traders might even think they could start trading commodity futures with $10,000. This is, however, something that has a lot of riders attached to it.
To trade modestly on the back of a little investment, you must already have saved sufficiently so that you could lie comfortably for at least a year. You will need a commodity account funded with sufficient money – good enough for profit generation. In case you wish to make $50000 a year, you ought to have a $250,000 account. In case you have to make a 20 percent return each year, $50000 will go into your kitty.
Trading plan
It is essential to have a sound trading plan in place. In case you expect to make a living from trading commodities, know that prior trading experience is a definite advantage.
Your Trading Plan should include jotting down your goals and strategies in your Trading Journal. In addition, it should have a good description of your risk tolerance and risk management practices.
The obverse of a trading plan is random chaos.
Trade commodities is not for eking out rent money
Do not ever put yourself back up against a wall. Stress is bad for trading. Do not underestimate the psychological and emotional pressures that pile up on the disadvantaged daily.
A good understanding of commodities trading with even the most minor of investments will need you to be fully attentive. So, free your hands of other concerns, and dive into your trading concern!
Find your market
Generally, consistently successful commodity traders concentrate on a single market or a small market segment. For example, you may be a dab hand at trading cotton. But you could be awfully bad at trading precious metals. Each market has its peculiarities. Make one your own.
Getting to know your knack for trading a certain market may take some time. Say, half a year. You will develop a feel for that market.
Even the commodity futures market is compartmentalized for this very reason.
The tendency of prices to trend
The supply and demand factors are much less dependent upon volatility. Definitely, there are volatile periods that are full of uncertainty. However, calm periods also are frequent enough, permitting the play of supply and demand so that there’s assessable appreciation or the obverse.
Trend following trading strategies, in particular as applied to longer-term time frames like periodical charts – give results in commodity trading. For example, trading the long-term trend, a pioneer came up with a simple plan: buy a new 10 day high and sell short a new 10 day low. Results followed when adjusted per overall trend as shown by the daily chart. The only change was taking trading signals that were in the same direction as the overall long-term trend.
Is it profitable to trade commodities?
While commodities do well in long-term trends, on an everyday basis, they are extremely volatile. So day trading commodity futures is indeed profitable. The leverage offered makes the question a bit complex, though. That’s where you put your risk tolerance and sound risk management strategies to the test.
Commodity futures market price changes
Apparently, commodity prices are set up by market perceptions of supply and demand for the commodity. For instance, a Mid-Western storm may propel up futures wheat prices owningto investors’ belief of considerable crop damages. Likewise, concerns about an economic depression may similarly amplify the price of precious metals.
Commodities traders make trades on the basis of analyses with predictive tendencies. Accordingly, fundamental analysis concentrates on studying global events and trade patterns.
On the other hand, the technical analysis concentrates on analysing historical price trends to forecast future ones.
Price trends are the concrete outcome of the interaction between investors’ perceptions regarding supply and demand. While fundamental analysis is your long-term price guide, technical analysis shows short-term investor psychology.
Conclusion
You can hedge against price fluctuations by using commodity futures in a certain way. Hedging becomes a reality since the spot price, and the futures price are the same on the day of contract expiry. You could consult a good commodities fund. Or you could consult PrimeFin to get your foot in the door to commodity futures trading.
