10 Commodity Market Tips You Need to Know
We use commodities every single day in our lives.
Commodities such as food, energy, and metals are products that just about anyone can use. We all put food in our mouths and gas for our cars. Even luxury items such as gold are included in the commodity market.
With this market constantly increasing, it can reap success. So it makes sense for business owners to start a venture in the commodity market.
But, where do you start? And how do you gain success?
Whether you want to sell commodities or invest commodities in the stock market, here are 10 commodity market tips you need to know.
1. Commodity Trading Is One of the Oldest Professions
Before we paid taxes and received employment benefits, our ancient ancestors traded goods.
Not all environments supported the growth of certain products, so trading was done to be sure a certain country can gain a profit and gain materials they did not have.
These ancient commodities commonly included food and culinary types such as spices, vegetables, and livestock. Others included materialistic commodities, such as gold, seashells, and natural stones. Eventually, the currency was developed.
The history and act of trading resulted in our current economy based on supply and demand principles.
2. Non-Professionals Can Participate
Anyone can get a start in the commodity market. However, it does require education and commodity market tips before diving in.
Fortunately, extensive schooling isn’t required. Just an understanding of how the industry works and how professionals make money.
It’s best to start by understanding the pros and cons. A common con is losing money. When you’re trading goods, understand a part of your capital go toward losses, and you won’t gain income immediately.
3. There Are Two Types of Commodities
Commodities can be separated into two categories: hard and soft. Hard commodities are natural resources, while soft commodities are agricultural goods and livestock.
There are two different markets for hard and soft commodities.
Hard commodities have a long-standing in economic health, for example, oil.
If oil can’t be exported and traded, the market will fail. The reason why is something such as oil is exchanged globally. Hard commodity products are usually the gauge to determine if a country’s economy will be successful or not.
Soft commodities, such as livestock and agricultural products, are more flexible.
These products are always in demand, but it’s easy to grow and supply agricultural goods. But the major impact on soft commodities is the weather.
Knowing commodity market tips such as hard and soft commodities will tell you what’s worth trading and if you’ll potentially face any risks.
4. Some Commodities Are Not Tradeable
You cannot trade the following commodities, as of 2016:
- Carbon dioxide
As for all other commodities market tips, pay attention to the market for each. It also depends on the product itself; some commodities have different pricing and grades that prevent it from being traded, diamonds are a great example.
If you want to get into trading, look to trade commodities that are safe. Examples include corn, gold, and oil.
5. Types of Tradeable Commodities
There are four categories of tradeable commodities:
- Metals (gold, silver, platinum, and copper)
- Energy (crude oil, heating oil, natural gas, and gasoline)
- Livestock and meat (lean hogs, pork bellies, and live and feeder cattle)
- Agriculture (corn, soybeans, wheat, rice, cocoa, coffee, cotton, and sugar)
Commodities such as metals and energy have a severe impact on the economic market. But other commodities such as livestock and agriculture are always in demand and always available.
6. There are Commodity Trading Standards
Standards are set so commodities can be traded without inspection. The trader needs to abide by these standards in order to successfully engage in trading commodities.
This is mainly found in food since there are safety standards that are imposed by the government. You want to trade quality agricultural products and trade livestock that isn’t sick.
Different countries have their own standards; for example, the United States and Europe have their own laws and regulations that monitor what leaves and what enters the country.
7. You Can Invest in Commodities Futures
Another way to participate in trading commodities is to invest in commodities futures. This is an agreement to buy or sell commodities for a specific price in the future. You can invest in commodities futures on just about any commodity.
There are two types of investors in the futures markets:
- Commercial or institutional users
There are a couple of reasons why investors prefer engaging in futures. To some, it helps with the budgeting process. Others focus on profit by the price of commodity changes made over time.
There are several different options when investing in futures.
8. You Can Use Commodities in Stocks
Several companies who engage in trading commodities can be invested in the stock market.
Oil companies — particularly those in drilling, refining, tanking, and other diversified oil companies — have a major pull on the stock market. Mining companies also have a major impact on the stock market.
9. The Commodity Global Market
Over the past 20 years, the global commodity market evolved into what is known as a ‘supercycle.’
When more capital became allocated to commodities, it reduced the amount of currency depreciation. However, prices of commodity goods still fluctuate with the influence of the global market.
10. You Can’t Make a Fortune Overnight
While you can receive great pay-off when you trade and invest commodities, it will take time.
There are many complexities in this industry, and most professionals learned on the job. You will have to dedicate a large part of your life to trading commodities.
The best practice that will affect your performance is to research trends and learn real-world commodity stories.
Did These Commodity Market Tips Help?
While trading commodities seem like a safe way to make a living, there are a lot of factors to consider before becoming a commodity professional.
Each country has their own regulations and standards to abide by, and this is becoming more in-depth with the global market.
There are also certain commodities that can’t be traded. And some of these commodities have a powerful effect on the economy.
Visit our website for more information regarding buying, selling, and trading commodities.