Commodity Trading – Is It Still Hot On A Stock Market?

Commodity Trading

Commodity trading indicates goods that have a universal price. Gold has the same price per ounce in the United States, Great Britain and Bombay. A barrel of oil rates the same price globally, and agricultural commodities trade at similar prices. Commodities take on many different physical forms so they are classified as a group based on value and how they are traded. Complex rules and speculation of futures keeps the commodity market active and hot on the stock exchange. Commodity trading players can be ranchers hedging feed prices to commodity trading brokers who work for large multi-national trading houses.

Commodity trading makes sound investment practices since commodities are goods not based on the profits of any one company or nation. For example gold stocks trade high on global stock markets and will not disappear anytime soon, but stock in a car company or utility can change at any time. Diversification using commodities and trading on the stock market with EFTs can provide stability for an investment portfolio. Commodities are not dependent on any one entity but are spread among many companies and business concerns. Commodity trading can provide a realizable source of income for investors who carefully consider what commodity to purchase, when to buy that commodity and what price to eventually sell the commodity. Market scenarios do not have the same effect on commodities the way they impact stocks, but do be aware that some commodities can suddenly drop, disappear and have low performance.

There is some risk associated with commodity trading and these include the type of margin at which the commodity is purchased and the nature of the commodity itself. Copper mining stocks are good examples of market volatility. The price of copper is a main factor to consider when buying into copper futures, but more factors affect the price of copper stock. Stocks move with the overall market and if the market is trending lower, copper stocks could fall in price. Additionally if the demand for copper lowers, stock prices will fall further. If you place a major portion of your stocks in copper and a strike at a major copper mine halts mining and production the difference between the expected performance of copper commodities and the reality will cause a loss in your investment.

Commodity trading generally has low volatility rankings and most commodities trade in predictable ways. You can choose to invest in commodities with high volatility ranks to increase a chance of earning more money, but this strategy can backfire and result in portfolio losses. Take for example steel prices. Steel commodities are highly volatile due to producer’s inability to established fixed prices for the purchase of raw materials. Historically trading in steel futures creates high investment returns, but the price fluctuations as well as supply and demand have caused steel commodities to plummet and investments to be lost.

There are ways to hedge investment possibilities and these can include stock market tips, reading stock charts, and learning what types of stocks and commodities are performing in the market. Research is the key and developing timing skills will help you invest in the right commodities. Right now, commodity trading is hot on the stock market.