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Top 5 Golden Rules for Commodity Trading

We use commodity in our daily life, every day. Though we don’t realize it. There are a lot of things that come under commodity.

You might be wondering what exactly is a commodity.

What is a Commodity?

The food we consume, the gas we use in our cooking, the fuel we use in our car, the Gold we use to look better and for investment and many more metals, all comes under commodity. Some of them traded in the international market. Remember, not all commodities are tradable. They are traded in a different market known as a commodity exchange.

What is Commodity Exchange or COMEX?

Some of the commodities as GOLD, SILVER, CRUDE OIL other precious metals and agriculture livestock are traded heavily in the global market. They are traded in primary futures and options market. There are around 400,000 futures and options contract executes every day in COMEX.

(COMEX operates out of the World Financial Center, Manhattan and it is a division of Chicago Mercantile Exchange (CME))

If you want to be a successful Comex trader you should follow smart strategies. As the Comex market is a global market you should take decision more carefully and cautiously considering the broadness of the market.

There are many Comex Trading tips you will find online to maximize your profit in trading but there are only a few which are actually conducive.

Multi Management Future Solutions is providing here the top 5 golden tips for commodity trading which you can use for profitable trading.

Top 5 Golden Tips for Commodity Trading:

 

1. Understand the Commodity Market


The commodity market is huge. To understand the market you have to learn about it in depth.

Do you know there is two types type of Commodity Market i.e. Spot Market and Derivative Market?

There are two types of commodity, Hard and soft commodity.

You need to know everything about the above. Understand the market and its trend, what moves the market up and what moves the market down. If you have the strong market insight it will help you to enhance your chances to make the profit in Comex Market.

 

2. Choose Wisely


You will have to choose two things before starting in Commodity Market. Broker/advisory services and type of Commodity to trade. They both will decide your stay in the market. Choosing a wrong broker/advisory service or wrong commodity will cost you lots of money and time.

To chose a broker/advisory services, do the research about the commission, service tax, transaction cost, stamp duty, and exchange cost. There are rules and regulations for every brokerage or advisory service, read them thoroughly and do the research to find the best available services in the market.

To choose a commodity, choose the one which you understand. Some trader understands the crude oil market and some find interest in Gold trading. Do market research and choose accordingly.

 

3. Trade with Surplus Fund


What is the surplus fund?

The surplus fund is the amount of money that remains after the payment of all the liabilities, insurance, tax payment, and other expenses. Having a surplus fund considered under prudent financial management skill.

If you use surplus money for investment or trading it will save you from big trouble of going bankrupt and from financial instability.

Commodity market deals with big money that means you can earn a huge amount and you can lose a lot as well. Many traders take loans or borrow money to do trade in Comex thinking they will make a profit and will return the money. But in every type of trading, there are chances of loss and gain both. Therefore especially in the global market where the large sum is traded in every trade, use the surplus fund.

 

4. Do not over-trade


Overtrade in simple language is risking big money in a particular trade. Overtrade is the one simple way to lose all your money quickly. To avoid overtrade you should always limit your loses to 2%.

Suppose you have traded $ 20,000 in gold trade today and you limit your loses to 2%, in that way if the price goes against your expectation you will lose only $4000. This way you can save the moral and money to trade the next day again. If you don’t limit your loses, you might suffer great loss and you won’t be able to continue in Comex trading.

Always learn how to manage the loses.

 

5. Have a strategy/ Game Plan


In any type of investment or trading, a game plan is very critical. A game plan is the strategies you follow while making a trade. With this, you decide whether to make a trade now or hold it for a few more hours/days/month. Make a strategy to decide when you should follow the trend, which position you should buy. Making a strategy will take the time as you will have to follow other traders as well to design a profitable strategy. Stick to the strategy even when you face losses which you will face usually. Do not jump into 4-5% risk to cover up your losses.

Your strategy must include your risk tolerance i.e. how much you are willing to lose at a different time interval. It should also cover the time you will move to large capital and how much percentage of the money you will keep in cash and how much in the trade.

 

Bottom Line

The commodity market is not a complex market but it is different from the other exchange market and therefore rules and regulation in Comex Trading is a bit different. To become a potential Comex trader you must have in-depth knowledge of market processing. As it is a global market you should always aware of the global news and updates. If you will follow the above top 5 golden rules of commodity trading and use it smartly you might increase your chances to become a successful Comex trader.

 

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