Trading in commodities requires quick thinking, but large profits and losses can occur with a small trading account. Due to its leveraged nature, the commodities futures trader can control futures contracts for fraction of the real value. In technical term, this is known as margin trading.
Before anybody with a little capital, but possessing a strong want to learn can get started in commodities trading, he must understand the risks involved. Another pre-requisite is he is willing to commit the learning effort needed. There is a sharp learning curve and new futures traders lose money. However, those that are persistent and are patient enough to apply what they learn have the potential to make large profits in the long-term.
Start with a basic commodities trading course and decide on the commodities to start with. Be focused and learn as much as possible about those selected commodities. The recommended starting point for many traders is grains. Grains are seasonal, weather-dependent and fairly easy to research.
When you are ready, open a futures trading account. There are a few things to think about when choosing a futures brokerage. These include the cost structure or fees charges on each transaction; the interest paid on deposits in the trading account; the SPIC insurance; the trading platform and charting tools used: the free research provided; the emergency rules for opening and closing trades when normal rules fail. There are many online futures brokerages offering many services and benefits. Do the research necessary to choose one suitable for your needs.
Opening an account with the futures brokerage of your choice will need providing personal income information, history on credit and earlier experience in trading. The broker wants to know your capacity to handle severe losses and if there is any chance that you would go broke. All the inputs would decide your trading account limit. For example, the broker may need a higher margin for each trade or limit the number of contracts tradeable until your track record established for certain time. Once the account opens, you just need to fund the account.
Unlike stocks, a futures trader can go long or go short on any commodity traded. Money made or lost in whatever direction the market moves, depending on direction of the position. Market research and trading strategy will help you to decide when to enter and leave the market traded. It requires a carefully developed set of trading rules for making trading decisions and the trader should develop the necessary discipline to adhere to his trading plan.
Traders should learn to limit their risk on trades by setting limits on the amount that would be lost if the futures market goes against the trade. This is by setting a stop-loss order with the brokerage to close a trade when it is not working out. By limiting the most severe loss, the trader would be able to survive in the futures market for a very long period, while waiting for his lucky break. This is something that every trader got to know.
The trading strategy enhanced as the trader gained more knowledge about the commodities traded. Each commodity trades is a short-term speculative investments, but trading is long-term. The best trader is able to adjust the strategy to new circumstances and better knowledge.
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