As always, the best time to get started with a new personal finance skill is, if not yesterday, now. Saving for a rainy day is the bare minimum we are expected to do, but when it comes to nurturing our financial future, investing is where things truly become promising and kind of necessary.
Whether you are looking to start small or simply add some diversification to your investment portfolio, commodities trading is an interesting and intuitively understandable concept.
Explaining Commodities
In general, commodities refer to the basic material goods on which our society, economy, and basic living needs depend on.
Things such as natural resources, fuel, and food, are produced and traded on such a large scale, every single day. Around them exists a large trading market, as one can imagine. From the farmers who grow agricultural products, to the companies that extract and refine metals, these goods end up being traded on a large scale and are subject to market forces that fluctuate every single day.
This market is open to investment by the general public, and just as with any financial instrument, members of the public can trade these goods as small abstract units with a set price. You buy low, and hopefully sell high.
How It Works For You
As a private investor, you will want to trade in CFDs (contracts for difference). This is a simplified way to trade, in which you agree on the difference between the opening price of a commodity and its closing. Instead of buying and selling as one would normally, the “product” doesn’t “move”, but in the end money changes hands as if it did change ownership.
As with any speculative investment, CFDs depend on your ability to foresee the direction of change in price correctly. You gain or lose money by predicting correctly, which will be up to you as a trader to learn how to do, and will take some time and experience.
Now, in order to trade, you will need to work with a broker. Trading in financial instruments is always done with a broker. For better or worse, trading cannot be done directly, as it might be with your personal belongings and such.
Brokers come in various shapes and forms, however when choosing one the very first thing you must do is check for the regulation status of a particular firm. At minimum, you will want to work with a broker that is certified by whichever regulatory agency is responsible for them, which depends on geographic location. This can be the CFTC (Commodities Futures Trading Committee) in the USA, or the FCA (Financial Conduct Authority) in the UK. Trading can be fickle under the best of conditions, and an unregulated and uncertified broker is nothing more than a guaranteed scam that preys on the uninformed.
Once you narrowed down the list of prospective firms you’d like to trade with, you should keep an eye out on certain criteria. First, you’d want to choose the firms relevant to your geographic location and/or country of citizenship/residency. Afterwards, you’d want to consider the ease of joining as a client, minimum deposit you might need, various fees and charges, as well as the unique features of the trading platforms available to you, along with other customer service related details.
Getting Started
As we said before, the best time to start is always now. At your earliest convenience, start taking small steps managing your financial affairs the right way. Open an account with a reputable broker and try out their demo platform. Get the hang of trading and see how it goes for you. Investing in small amounts and developing your skills is a minimum risk and high reward pursuit, as long as you invest slowly, carefully, and according to your level of competency.
While there are many stories about individuals who lose money in such markets, this can mostly be attributed to uneducated decisions, and reckless behavior. As with anything in life, it takes patience and discipline to succeed in trading, but it doesn’t mean that this is beyond the capabilities of most people, and there is certainly no shortage of warning signs to help you stay away from bad decisions.
A reputable broker will want you to succeed and will help you move forward the right way.
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