Trading commodities online is similar to stock trading. While the stock market involves buying and selling of company shares, commodity trading on the other hand includes buying and selling of commodities. Commodity trading is considered a judicious option for those who wish to diversify their portfolio beyond real estate, shares and bonds. The commodities traded are usually goods like sugar, coffee and wheat, produced in bulk by various suppliers.
Online commodity trading is highly affected by the demand and supply. While an increase in prices can be noticed due to a limited supply, excess supply on the other hand can cause prices to fall down. And so, it is advisable to do your homework when trading in the commodity market. Traditionally, traders used to call the commodity broker to place orders and often kept waiting for their call to get an order price. The entire process was less efficient.
Listed below are some factors that need to be kept in mind when trading commodities online.
1. The first thing is to choose a commodity broker. Choose the one who specializes in online trading and offers versatile trading platform when it comes to quotes, charts, strategy analysis and order entry.
2. The next step is to undergo a documentation process to open an account. All the necessary information needs to be stated in the form, including trader’s income, credit worthiness and net worth. Commodities are highly leveraged assets and therefore financial data is important. Not everyone who completes the form is eligible to open a commodities account. Sufficient income, credit worthiness and trading experience are critical elements of suitability.
Before you commence online commodity trading, it is important to create a well-researched trading plan. A number of commodity brokers offer imitations to practice with. These imitations will familiarize you with placing orders and could save you from making critical order entry errors.