Commodity Trading Is Not Everybody’s Cup Of Tea

Commodity trading is an investing strategy wherein goods are traded instead of stocks. Commodities traded are often goods of value, consistent in quality and produced in large volumes by different suppliers such as wheat, coffee and sugar. Though many reap large profits by trading in commodity market, it is not everybody’s cup of tea. Following are some of the reasons which lead to lose in commodity trading:

i. Lack of Education on Commodity Trading:

Many new traders do not educate themselves on how to trade commodities properly. This goes beyond learning the ticker symbols, futures margins and contract sizes of a variety of commodities.

ii. Over Leveraged Commodity Trading:

Almost every small trader who ventures into commodities falls into this trap. There is huge leverage when trading commodity futures and a couple bad trades can wipeout the over leveraged trader.

iii. Money Management:

Do not risk more than 5 percent on any one trade. Most professional money managers risk less than 2 percent on any one trade.

iv. Commodity Trading Plan:

A trading plan is your guide to how you will control your trading. It should be in writing and reviewed regularly. The trading plan should include the markets you will trade, your trading strategy, money management and even a plan to stop trading for a period of time if your account equity drops to a certain level. Trading without a plan will lead to erratic an undisciplined trading, which ultimately leads to painful losses.