Commodity trading has a somewhat different shade to it compared to traditional equity trading. The number of factors that impact the price and the trading view on a commodity are a lot more different and broad-based. Here are a few factors that identify the strategy of commodity trading. In most of the agricultural commodities the most important factors are supply and demand. Normally a flow in demand (like commodity demand from US) or a sudden scarcity in supply can cause agricultural commodity prices to increase. Currency differences are another significant factor that influences the price of commodities. Since most of the commodities are designated in US dollars, the value of the dollar index has an excessive influence on commodity prices. For example Gold and Oil.
Factors Influence the Price of a Commodity
Inflation is one of the most important factors that influence the price for commodities. Generally rational inflation is a sign of a powerful economy that leads to a rise in demand for commodities. This is accurate for most agricultural commodities and metals. A commodity is an exchangeable marketable item produced to compliment the wants or needs of the consumer. Economic commodities comprise goods and services. Soft commodities include agricultural products like wheat, coca and millet etc. whereas hard commodities include gold, silver and crude oil etc. The strategies listed below would serve as a guide to commence your trading in the commodity market.
1. Moving Averages for Trading Commodities:
One of the popular strategies in commodity trading which are technical in commodities and stock markets is the moving averages. The most frequently used method requires moving averages in order to find out the trend of the market as well as in finding support and resistance levels.
The combination of future and options authorize any strategy to be appropriate and will work in the market. Making use of available options with futures does make the trade more traditional but it gives great outcomes.
3. Trading Commodity Spreads:
A trading commodity spread generally engages buying a commodity and selling the same or a similar commodity along with it. It slices down the risk of buying a straight commodity position very heavily.
This is the best strategy for trading whether you’re a day trader, a long term trader or an investor. It gets very difficult for the traders to keep up with all the commodities as there are about 30 commodities which are actively and passionately traded. Therefore, specializing in trading just one type of commodity and making money from it is the best decision.
For example: Gold is one of the best commodities used for trade. It is always in use and the prices fluctuate every single day.
5. Trading Breakouts in Commodities:
One of the best strategies for commodity trading in trending markets is Trading Breakouts. In this commodity strategy, the market has to blow up something in order to develop a new trend. This approach is a bit multiplex to get the hold of as not every trend might work in the long run.
Commodity trading is one of the riskiest but the most profitable kinds of trading in commodity marketing. The Indian combination provides one a lot of commodities to trade into. One can be a day trader, a long term trader and an investor and make a huge amount of profit.
These are some of the key trading strategies for commodities. However, traders need to consult their financial advisors or brokers before taking any long or short trading decisions on these ideas.