Commodity trading is one of the oldest forms of trading, as it provides diversification by way of physical assets such as oil, gold, and crops. 

However, there are many pitfalls of this market, such as extreme volatility due to events worldwide, changing supply-demand dynamics, and economic development. This article offers a step-by-step overview of commodity trading, real-life examples, and risk management guidance. 

Commodity trading – learn with SIFX

Through SiFX, new traders can obtain the guidance, tools, and resources to begin trading the commodities safely. 

Since the 8th of November 2024, the financial markets around the world have been in an extreme state of volatility due to the latest geopolitical developments and economic data. 

US Markets: The S&P 500 and the Dow Jones Industrial Average both lost a little over the past week on traders’ anxiety about the presidential election. Bond buyers are going for the defensive line, holding back on bets while the election looms larger than the Federal Reserve policy meeting. The Fed likely intends to reduce the key rate 25 basis points to 4.50% – 4.75% range but markets are staying away until the election is settled.

European Markets: European shares have been in decline as fears swirled over U.S. trade policy. The announcement of the return of Donald Trump as president of the United States poses threats of heavy tariffs that could further hurt euro losses and harm European stocks. The ECB will lower rates to compensate for the slowdown, thereby supporting European bonds. 

Emerging Markets: In India, traders are turning to locals as foreign holding has dropped to an all-time low. Swiggy’s $1.35 billion initial public offering in Mumbai demonstrates this shift in local flavor, as does Swiggy’s $1.35 billion stock launch in Mumbai. 

Commodities: Oil prices have fluctuated as a result of economic uncertainty and OPEC+ production decisions. According to the International Energy Agency, global coal demand will not rise or fall this year or next because rising electricity demand in some countries offsets growing solar and wind capacity. 

Currency Markets: The euro saw a sharp fall, suffering its most daily drop since the 2020 COVID crisis, as US trade policies and economic data could shape the outcome. 

Traders are advised to stay alert for such developments, since geopolitical developments, central bank measures, and economic indicators continue to determine the behavior of markets. 

Step 1: Know The Basics of Commodity Trading

Commodity trading entails selling and purchasing physical products essential to the world economy. Commodities are often classified by sectors such as metals (e.g., gold, silver), energy (e.g., oil, natural gas), agriculture (e.g., wheat, coffee), and livestock. Commodity trading involves a physical product, in contrast to shares of companies. 

Practical Example: Oil price movements often occur as a result of geopolitical tensions. When OPEC reduced production in 2023, for example, prices jumped, hurting traders and consumers. It’s not unusual for commodity markets to experience such volatility, which can present a benefit and a threat. 

Step 2: Selecting the Right Platform

You need to choose a trustworthy trading platform. SiFX is an easy platform to trade, with multiple commodities easily available and a host of resources to support novice traders. SiFX delivers educational resources, up-to-date information, and risk management features to help traders make decisions based on the facts. As with any platform, look into the fees, customer support, and trading tools and make sure it’s right for you. 

SiFX’s educational and support offerings are perfect for those just starting and who want to gain expertise and knowledge in commodity trading. 

Top Commodity Trading Tips in You Need to Know 2024

Step 3: Physical vs.  Derivative Commodities 

There are two types of commodities trading: physical (purchase of goods) and derivatives (contracts such as futures and options). The average novice trades derivatives because you can speculate on prices without owning the commodity. Futures contracts, for instance, are contracts to purchase or sell a product at a specified price and time. 

Derivatives can be promising but they are risky. Futures contracts are illiquid, meaning you must sell or buy them no matter what the market does. SiFX guides traders on how to properly use these tools so that they know what the risk is. 

Step 4: Conduct Market Research

Trading commodities effectively involves good research. The price can be influenced by weather patterns, economic trends, and geopolitics. Each product is different, and each one of them has its reasons behind it. 

An Experiment From The Real World: Crops, such as wheat and corn, tend to fluctuate in response to climate. In recent years, droughts in important farming areas lowered yields and increased prices. Alerting to such events is the key to informed trading. 

SiFX offers real-time news and data for traders to keep up with events that could affect their trades.  

Step 7: Choosing a Trading Strategy

Trading strategies for commodities differ in their diversity and choosing one that works for your objectives and risk profile is vital. Trades involving trend following (where the trader purchases or sells in response to market trends) and news trading (trades involving economic or political news) are very popular. 

Each strategy comes with risks.  Trend following, for instance, can pay well in long-term trends, but it will lose money if the market abruptly rebounds. SiFX also offers educational content to help traders pick a strategy that suits their skill and risk appetite. 

Step 8: Staying Cool in Tough Markets

Markets in commodities are emotional and volatile. The key to success is keeping your head up and sticking to your game plan. SiFX offers trading psychology, which allows traders to cope with emotions during periods of market anxiety. 

Not trading on impulse is one of the basic trading strategies that beginners need to learn. SiFX’s emphasis on emotional discipline ensures traders are well-prepared to act with reason in volatile markets. 

Step 9: Using Technical Analysis

Trends and entry/exit points can be discerned using technical analysis. With tools such as moving averages, RSI, and trend lines, traders can see how prices will move and adjust strategies accordingly. 

As SiFX’s platform comes with built-in technical indicators, traders can easily incorporate these factors into their trades. Technical analysis isn’t always accurate but in tandem with market analysis and risk management, it can give traders a solid basis to make informed decisions. 

Step 10: Take it Slow and Start Small

Taking a bite of the size is an economical strategy when entering the commodity industry. Micro-trading lets novices understand market mechanics without being too risk-averse. With knowledge and trust, traders can incrementally increase their trade. 

It is not a path to prosperity through commodity trading. Growing it slowly and sustainably is better. SiFX teaches traders to keep on going and not to chase the highs and lows which helps to maintain a healthier market mindset. 

Experimental Real-Life Example: Current Events Around the World & Market Values

Commodity prices can also be influenced by global events. The recent supply chain interruptions, for example, have driven up the price of metals such as copper and aluminum. Such disruptions make it important for traders to monitor global developments and their impact on commodity markets. 

SiFX gives daily news and analysis, making it easy for traders to stay abreast of global factors that affect prices. 

How SiFX Helps Your Commodity Trading Journey

SiFX is more than just a trading platform but is an abundant resource for anyone who is just getting started with commodity trading. The intuitive interface, real-time data, and risk management tools on SiFX give traders the assistance and knowledge they need. With the platform’s educational materials, it is a perfect option for anyone who wants to get a decent start with commodity trading. 

From free trial accounts to powerful charting features, SiFX has everything you need to make savvy, ethical trading decisions. You’ll have a partner you can count on when it comes to trading commodities. 

Risk management is the most important part of trading, especially in volatile markets such as commodities and forex. SiFX empowers traders by offering support and educational tools that enable them to take risks responsibly. SiFX’s platform comes with essential tools such as stop-loss orders to reduce risk, real-time information to make informed decisions, and risk management to ensure there is no overexposure. 

These resources help traders come up with a strategy that maximizes profit potential and minimizes risk, creating a long-term trading style. Putting the focus on risk management, SiFX offers traders the tools and understanding they need to hedge their funds and trade without fear in volatile markets. 

Trading commodities is a highly volatile market with many opportunities and threats. Platforms such as SiFX make it easy by providing the information and tools to trade responsibly. Always keep in mind that, to be successful in commodity trading, you need to combine risk management with research. 

Are you ready to begin commodities trading with SiFX on your side? Start trading today!