The history of trading commodities can be traced down from as long as 6000 years ago. The market of commodity trading has always been on a rise. The economic impact of this has been on several countries by one way or the other. Scarcity of critical commodities has resulted in a constant tension among the countries. One such example is when Japan ventured into the foreign land in a quest for oil and rubber. Over supply of such commodities can also have a negative effect causing devaluation of the prices of core commodities. Crude being an energy commodity has been closely watched my nations all over the world. High crude prices can cause great trouble for an average western consumer. On the other hand low crude prices can affect the Middle Eastern countries that are completely dependent on the energy producing commodities.
The business of commodity training was an essential in the past even though it was unreliable regarding the quality, date of delivery and transportation of the commodities. In the modern times though there are empires built among the countries that have their own commodity to be relied on. Each of these empires can be affected by one another with the rise and fall of the prices of commodities. The trading of commodities in the commodity market around the world can fall in one of these categories:
Energy (heating oil, crude oil, natural gas)Metal (gold, silver, platinum and copper)Livestock and Meat (lean hogs, live cattle, pork bellies etc.)Agricultural (corn, rice, cotton, sugar, cocoa, soybeans, wheat)
Over the years, the action of trading such commodities has become more and more easy. Technology has made the trading faster paced and convenient. The internet has made it possible for everyone to trade their commodity online. They have had their own pros and cons for all the people involved in it. The points mentioned below can act as commodity tips and guideline for anyone interested in commodity trading.
The advantages of commodity trading for a person can be in the following ways:
The trading in commodities can make the trader earn huge profits due to the flexibility of the buying and selling of a contract. A trader if expecting for the price of a certain contract to rise in the future can buy the contract and sell it the future price. However if the price is expected to fall, the trader can sell the contract and make a decision to buy it in the low amount of upfront capital can enable the trader to buy and sell contracts. The no interest charge on the use of leverage makes it possible for the trader.Quick profits are possible with commodities like platinum; gasoline and kerosene as the price of such good are often fluctuating. It offers a dynamic market to the trader allowing him to earn quick profits.
However, there are certain disadvantages to be looked on before starting off a trade involving the commodity market.
There is no guarantee on the initial investment done by the trader. Unlike in the stock market, if the losses are greater to the initial margin, additional capital may be required to be invested if the market is against the trader’s orders are to be used to limit the potential of losses incurred. The low upfront capital can therefore result in big profits and big mentioned in the first point, if the additional capital is not deposited by the trader, the positions of commodities in the market can be liquidated by the broker himself.
Having its own fair share of benefits and risks, the commodity market is an ever growing world of trading. It’s important to keep in mind when and how much to invest on a certain contract. Every commodity has its own potential of profits and losses.