What It Takes To Be A Successful Commodity Trader

What It Takes To Be A Successful Commodity Trader

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by Evelyn Addison — 9 months ago in Review 4 min. read
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Commodities traders need resilience, intelligence, perception, and motivation if they want to be successful in this arena. This area of trading is and will continue to be volatile; however, with that high volatility comes a great opportunity for profit and that is why people continue to learn the ropes and make the trades. To do this successfully, though, there is a journey to undertake, and here’s what it takes.

Getting to Know Trading Platforms

Every commodity trader is different with varying needs regarding any given derivative they are investing in or selling. That means, having a platform that meets your specific profile is essential. There must be supportive tools, access to information, and a range of services that fit with what you are trying to achieve. Considering that there are thousands of platforms out there, this will naturally require some energy to get right.

Knowing Where the Valuable Resources Are

Commodity traders need a keen eye on the market in order to properly manage their derivatives. Keep in mind that some commodities only trade during certain months of the year and others are available more frequently. Within this timeframe, there are dozens of pricings, limits, and positions to be observed. This is where option trading experts with beneficial intelligence come in handy. Whether it is a hedge fund or something else entirely, trading commodities cannot be done without this type of insight because the trends and fluctuations must always be watched in order to analyze the next move.

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Understanding Attributes

The three major things a commodity trader must get to know are open interest, volume, and price. When you can confidently navigate these attributes, you will be well on your way to becoming a successful CT. However, it takes time to develop this kind of knowledge and learning fast is the best option.

Open Interest: Key Takeaways

Open interest on a commodity is the number of options/futures/other derivative that is available to be traded during open market hours. If this number is high, it indicates high liquidity which may be an attractive option to commodity traders. If the number is low, it may be off-putting.



Volume: Key Takeaways

When it comes to volume, you are observing the number of times a commodity has been sold or bought during market hours. This number is important because it suggests interest and movement and if you can interpret this data correctly, you open yourself up for potential profit.

Price: Key Takeaways

The price is simply a figure that the commodity has attached which will determine whether you gain or fail. You can have a certain say in this when it comes to commodities trading, but you have to move quickly and consider whether it is worth diving into say, an out-of-the-money derivative vs. another choice.

You Must Have Confidence

Being strict is one of the biggest tasks for a commodity trader. This is because, if you can’t be strict with your decisions, you won’t get anywhere. Discipline and self-control are the two most desired characteristics for anyone stepping into this world because there is too much at stake to move in any other direction. For instance, you cannot hope to achieve your trading goals if you invest in only one derivative. Therefore, you will naturally have a portfolio that reflects this statement, and it will have various commodities from all around the market. In order to manage those, keep on track, and make the wisest decision regarding each one, you must be in control at all times.

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Learn About Stop Loss

Stop loss in commodities is a little different from throwing in the towel and walking away from the activity. What you need to know here is that a stop allows you to have some degree of control over the price you pay or sell for by placing a stop order on any investment when it reaches a set price. If you can manipulate this successfully within the confines of the rules and not move against regulations, then this will be a great move to have in your pocket. It will allow you to avoid costly profit losses as far as possible, but it does mean that you have to be actively involved in analysis and predictions.

Remember:

  • A stop loss will protect your profit margin.
  • It is a smart move for all commodities in your portfolio.
  • It will help maximize your returns.
  • It will help minimize your losses.

Demand and Supply Factors

Another major concept to get your head around is the demand and supply factors and how they play a part in barriers to success in commodity trading. It is firmly established that commodity pricing rises and falls directly in line with the supply and demand correlating data. When supply falls, demand increases and the prices will see a significant shift upwards. This, when flipped, means if supply increases, demand will fall, and the price will therefore see a shift downwards.



What a Downward Shift Means

As a CT, you need to understand what this shift downward will mean for all of the others and yourself. Every time a price drops, it will eventually reach a bottom. This is the lowest it can possibly go before it is either removed from the market or gets written off for another reason. This low price will make people invest, and that is when things will shift. These are the ones to be wary of, so you need to tread carefully.

Commodity trading takes guts, heart, and brains. If you have all three, you may just be able to make it.

Evelyn Addison

Evelyn is an assistant editor for The Next Tech and Just finished her master’s in modern East Asian Studies and plans to continue with her old hobby that is computer science.

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