Despite considerable experience and professionalism, many traders and investors have vague knowledge what commodity market represents. Their opinion on it is often subject to unreasonable, but frightening myths like that in the case of an unsuccessful investment the trader can lose the house, but to own five thousand bushels of soy.
Nevertheless, similar horror stories for adults have not so much common with reality. The commodity market is not much riskier than others, with the condition that the trader is completely aware of his actions, and timely reacts to the changes. All popular “myths and legends” arise only because many people simply aren't adequately informed about market features. The elementary terms, like commodity futures or the option contract, generate in them vague alarm though in the conditions of the exchange or stock market the trader is courageous and full of enthusiasm.
The same investors and traders who decided to pass to active actions in a new field, with surprise understand that the commodity market isn't more difficult than another at all. And the tendency to changes in the financial world which only amplifies for the last several years, encourages the transition of traders to the new trading perspective.
Introduction to the commodity markets
Experienced players of the commodity market aren't tired of repeating: there is no sense of fear before commodity futures and options, their difference from other trading instruments are insignificant. And if the trader feels confident in the Forex and stocks operations, commodity futures and options will obey for sure.
The basic difference between the sale of stocks and options, for example, IBM and sale/purchase of futures and options of cocoa doesn't exist. This can tell you any more or less experienced player who chose the commodity market. So you shouldn't doubt success if you will understand fundamental factors and their impact on the market.
The main problem which beginners should face is the understanding of the fundamental laws and the principles of commodity market movement, the reasons why changes in cotton, soy, cattle or sugar markets appear. For most of the traders there is enough knowledge of currency and stocks behavior, all the rest lies out of a zone of their comfort and, therefore, is rejected.
Nevertheless, the goods market is quite accurately controlled and regulated. Here work immutable rules showing outstanding performance and ensuring the safety of the trading equity.
If the investor or the dealer intends to diversify the trading instruments, increasing the potential income, an exit to the commodity markets is an excellent option.
Possibilities of the commodity markets
Thanks to the changes which happened in recent years in the financial world, dealers can maximize the profit, combining the benefits of broker service and the commodity market.
Such opportunity is offered by commodity exchange funds, in abbreviated form ETF duplicating movements of certain assets. The trader can easily apply them to the game in the most popular and profitable markets.
The goods market of oil, gold, silver or natural gas lets in on the territory of traders by means of the following exchange funds:
- Oil – USO (United States Oil Fund)
- Natural gas – UNG (United States Natural Gas Fund)
- Gold – GLD (Gold stocks)
- Silver – SLV (Trust fund of silver)
Generating profit from the commodity market with mentioned above exchange-traded funds is popular among traders for the following reasons:
- Ease. Transactions with ETFs are in many respects similar to stock or currency asset trading, so the trader in the habitual mode can perform sale or purchase as he got used to doing it with stocks of other companies. The trader shouldn't work with commodities brokers, and to penetrate into option, futures contracts.
- Options. The commodity market in the form mediated by exchange funds has options which lower potential risk of the dealer.
- Liquidity. The listed funds are considered the largest for certain commodity tools. They have quite an extensive amount that facilitates the possibility of a timely and safe exit from the market.
So, the commodity market doesn't cause anymore superstitious fear and concern to go to a habitual stocks and currency world. And the exchange funds will provide the necessary degree of trading comfort.