Posted on 26 July 2012. Tags: how to trade in commodities
Learning how to trade in commodities can help you diversify your portfolio and enjoy the potential for profits in this distinct sector of the market. Commodities are not like securities because they are real things. A share in a company has its own reality but it is also very abstract. That is why it can lose all its value suddenly. A commodity, on the other hand, is something that you can hold in your hand. When you invest in commodities, you buy shipments of consumable goods such as wheat or metal ores. The prices of these goods seem to go up consistently. This is especially true now as numerous developing countries, such as India, ramp up economic activity and increase demand for raw materials.
You can trade commodities much like you trade other financial instruments. However, there are two key differences. You must choose the framework of a commodities’ market within which to work and you must learn to use the contract system. Knowing how to trade in commodities is the first step to earning great returns with these goods.
• There are a number of commodities exchanges available, especially if you do all of your trading online. The Chicago Board of Trade and the New York Mercantile Exchange are just two of many examples. Ask your broker about how best to access these exchanges.
• Traders purchase commodities using contracts. They buy contracts which agree to sell certain quantities of a specific commodity for a set price on an exact date. Investors often purchase contracts with the expectation that the value of the commodity will go up prior to the contract date. This creates an opportunity to sell the contract to another buyer for a profit. That is how to trade in commodities for profits.
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