Understanding Commodities Trading

Written by Michael Federico
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Anyone who has ever seen footage from the NYSE or the Chicago Mercantile Exchange probably wonders how people ever make any money on the stock or commodities market. Papers fly, hand signals get thrown around, and people seem to be yelling in gibberish at the top of their lungs. Despite the appearance of chaos, there is some structure within the madness, and people actually do accomplish things on the floor.

Trading commodities differs from trading stocks, and before anyone goes online or sends a person onto the trading floor with his money, he should recognize those differences. When a person deals with commodities, he is dealing with futures. Commodities such as corn, coffee, orange juice and wheat are affected by a number of elements that have nothing to do with finance. The weather can wreak havoc on crops and send commodities prices skyrocketing. A person who trades has to be aware of all of the outside factors that will affect costs, and he has to be able to pick up on trends in the commodities market. He also has to be willing to take a lot of risk, because one wrong prediction can cost a commodities trader a lot of money.

Classes on Commodities Trading

Simply knowing the basics will not necessarily prepare a person for trading commodities. There are several systems that most experts use to raise the probability of making profitable trades. While none of these systems is infallible, they can increase one's chances for success.

It is wise for a person to take a class, attend a seminar, or work with training software that will introduce him to commodities trading systems. Experimenting with several different strategies will help a person to determine the strengths and weaknesses of each one. He will have a much broader range of knowledge regarding the market, and he will be better prepared to make tough trade decisions on the fly.


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