Commodities: Markets, Performance, and Strategies (2024)

FAQs

Which strategy is best for commodity trading? ›

What Percentage of My Portfolio Should Be in Commodities? Experts recommend around 5-10% of a portfolio be allocated to a mix of commodities.

Traders make money by buying commodities (or commodity derivatives) for a certain price and then subsequently selling them for a higher price. The buyer of a futures contract makes money if the future market price of the commodity exceeds the market price of the commodity at the time of purchase.

One of the simplest and most widely known fundamental strategies is value investing. This strategy involves identifying undervalued assets based on their intrinsic value and holding onto them until the market recognizes their true worth.

This rule suggests that investors should not allocate more than 5% of their portfolio in any one stock or investment. The idea behind this rule is to limit the potential risk to the overall portfolio if one investment does not perform as expected.

It suggests that 10% of your portfolio should be allocated to high-risk, high-reward investments, 5% to medium-risk investments, and 3% to low-risk investments. By following this rule, you can spread your investment risk across different asset classes and investment types, such as stocks, bonds, real estate, and cash.

Things to be aware of when investing in commodities

Commodities can be highly volatile, and market trends and timing can greatly impact their performance. Additionally, global events such as geopolitical tensions or natural disasters can impact commodity prices.

The first step is to familiarise yourself with the basics of commodity trading. Understand how commodities are traded, the various factors that influence commodity prices and the different types of commodities available for trading.

How do you corner a commodity market? ›

The most direct strategy is to buy a large percentage of the available commodity offered for sale in some spot market and hoard it. With the advent of futures trading, a cornerer may buy a large number of futures contracts on a commodity and then sell them at a profit after inflating the price.

Traders often look for broad trends in the output of individual commodities. Patterns in the level of crops being produced, metals being mined, and crude oil being drilled can offer clues about the direction of markets. Inventories: As with output, inventory levels can be a great fundamental trading tool.

Crude oil is by far the biggest commodity market, and oil prices were the talk of the town for much of 2022.

Investors can trade commodity-based futures, stocks, ETFs, or mutual funds, or they can hold physical commodities such as gold bullion. Three of the most commonly traded commodities include oil, gold, and base metals.

How do I start trading commodities? First, choose from 35 commodity markets, or commodity-linked stocks and ETFs. Next, decide whether to speculate on market prices by going long or short. And finally, you'd need to open a live account with a provider who offers commodity trading.

It's essential to prioritize trust but also validate it through thorough documentation and due diligence. Remember, in commodity trading, it's not about feelings or hunches; it's about verifiable evidence and reliable processes.

During the Opening Hours:

The opening hours of the commodity market, typically the first few hours after the market opens, are some of the best times to trade. This is when high liquidity and trading volumes make entering or exiting a trade easier.