Basics of Commodity Trading

Basics of Commodity Trading

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To trade commodities successfully traders ought to start by learning the basics of commodity trading. Trading

commodities is really commodities futures trading.

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Producers and processors of commodities buy and sell futures

contracts for delivery on a specific date during any of the

next months or years.



Producers and processors are typically hedging their

investment risk and helping to provide a stable market for the

commodity in question.



Speculators can trade the samecommodity futures

contracts by buying and selling futures or they can buy options

and sell options on futures contracts.



Commodity and futures training is a good place to start learning the basics of

commodity trading.



For those interested options trading in

commodities markets,



Options Training with Stephen Bigalow will provide basic

knowledge as well as the deeper insight gained from experience trading options in commodity

futures.



Commodity futures as an asset class differ from stocks or long

term bonds.



A standard futures contract for corn futures, oil futures, or

gold futures is a claim or a promise relating to a

standardized quantity of a tangible asset.



The claim for delivery or promise to deliver is on the contract expiration

date.



As a matter of fact, traders seldom hold a contract through to

expiration but rather execute the opposite trade on the same

commodity and expiration date in order to exit the trade.



Because a futures contract has an expiration date it is not a claim upon the assets of a

corporation.



Supply and demand often cause pronounced commodity

priceshifts.



Agricultural commodities are especially prone to large fluctuations

in price as variation in weather conditions and amounts of crops

planted or cattle culled from herds affect supply.



The basics of commodity trading are that a trader in commodities is not

concerned with competence of management, a margin of safety, or

diversifying a stock portfolio into various market sectors.



He or she is concerned with drought in Argentina or Russia, the opening of

markets in Asia, or, in the case of gold, the seemingly continual devaluation of

the US dollar.



The basics of commodity trading are that some commodities can

be stored, like gold, oil, and corn.



Some commodities, such as milk, have a short shelf life.



Knowing the basics of commodity trading for a given set of commodities is essential

for trading them.



Traders should know that the decisions of large producers and buyers of commodities typically

drive the markets in various commodities.



Therefore, not all fluctuation in commodity prices is based upon the fundamentals of production

and demand.



It is also based on anticipation of market factors by large

buyers and sellers.



Thus, successful commodities trading requires the ability to anticipate the actions of other

traders, the commodities market.



Using technical analysis tools such as Candlestick chart

patterns helps the trader see where the market is going.



This is because trading patterns in commodity prices tend to

repeat themselves.



Knowing the basic Candlestick analysis patterns helps the smart trader with useful knowledge to

successfully trade and profit from trading commodities.



Basics of Commodity Trading

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