The global economy is powered by commodities such as precious metals, crude oil, and iron ore. Smart investors can engage in the trading of these commodities and realize profits from their ever-changing prices. However, you need specialized knowledge to trade in commodities and amass wealth.
Before trading these commodities, you need to know about them. These are the raw materials used in the manufacture of goods such as agricultural products, fossil fuels, and mineral ores. Unlike bonds and stocks, which are financial contracts, physical goods—commodities—are purchased and sold in the market.
Common types of commodities include livestock, metals, energy, and agricultural products. Solar power, wind power, uranium, ethanol, coal, natural gas, and oil form the basic energy market. Zinc, aluminum, silver, gold, platinum, and palladium are basic metals in the commodities market. Agricultural products include palm oil, cotton, rubber, wheat, sugar, grain, and cocoa. The livestock includes hogs and cattle.
Commodity prices follow almost a constant pattern and depend on demand and supply worldwide. Grain prices could grow higher because of the ongoing war in Ukraine. A cut in oil production by OPEC could also increase the prices of oil and oil products. Therefore, investors who are interested in trading commodities could learn from a trusted stock broker, Joseph Audia, how to trade these commodities and make money.
The traders can diversify their investments into various assets. It helps reduce risk in case of a sudden fluctuation in prices. It also protects investors against inflation. Commodities trading involves the exchange of various assets, such as futures contracts, which depend on an underlying physical commodity price.
You can buy a futures contract expecting a rise in the price of a certain commodity. It means they go long in expectation of raising the price of the physical commodity. Likewise, they can go short on the expectation of a drop in the physical value of a commodity.
You will enter into a contract with another investor considering a commodity price in the future. Suppose you sign a commodities futures contract to purchase 20,000 barrels of crude oil at $60 a barrel in 30 days. You will not take physical delivery of the crude oil at the end of the contract. Instead, you sell the same through a spot market within 30 days. For example, you will sign another contract for the sale of 20,000 barrels of crude at today’s price.
If the spot price of crude oil is more than $60 per barrel, you will make a profit. Otherwise, you will lose the money. You can do these transactions on the commodities exchange in the US with the help of a stockbroker.
You need to open a trading account with reliable stockbrokers like Joseph Audia to engage in commodities trading. You need to pay a commission to the stock broker every time you buy or sell a commodity futures contract.
Unlike stocks, trading commodities is relatively safe and can help you make money. You can also take delivery of precious metals like silver and gold instead of closing the contract. The more you trade cautiously, the more money you can make in the commodities market.