Commodity trading is a word used frequently in the financial market. Commodities are also traded in markets, and buying them may help you diversify your portfolio and make more money. Learn how to trade commodities in this article.
Since the prices of commodities change over time, investing wisely in them can lead to good long-term returns.
To trade commodities in the UAE, you do not need to be a professional trader or trained investor, and opening a brokerage account is simple.
We will discuss where and how to trade commodities in the UAE briefly.
What Are Commodities?
Commodities are essential resources needed to manufacture products for daily usage. Commodities are the building blocks of a world economy and include materials such as oil, natural gas, sugar, metals like (Gold, Silver, Platinum, and Palladium) energy, and so on.
What Is the Commodities Market?
The trade of goods has been going on for a long time, and it has helped shape many governments, empires, and economies. Historically, commodities were traded at a physical location where a deal would take place. Today, commodities are still traded by governments, businesses, and individuals, both physically and online.
Online commodity trading is made possible by exchanges like the Chicago Mercantile Exchange (CME), the New York Mercantile Exchange (NYMEX), and the Dubai Gold and Commodities Exchange (DGCX).
The commodities market operates based on participant supply and demand. When a large number of people, businesses, or governments want a certain item, the price of that item rises. If no one wants a product, its price falls.
How To Trade Commodities
To start trading commodities, the first thing you need to do is learn about the different kinds of commodities. Then you must:
Open a Demat Account
To trade commodities, you need a Demat account, just like you need a Demat account to trade stocks. It is critical to select a reputable organization that delivers vital trade guidance. To manage the commodity market maze, you need sufficient input and assistance.
Analyze the services provided by the broker on its platform. Choose a full-service broker since they have a team of professionals that give in-depth research and suggestions regularly.
Deposit The Funds
When you open an account, you must make an initial deposit. The amount of the deposit depends on what is being traded, but it is usually between 5% and 10% of the contract value.
This information can be found on the trading firm’s official website. You must maintain an adequate margin to counter any losses. It is also important to come up with a plan for trading commodities that will help you learn more about markets and how much risk you are willing to take.
Every trader has a different tolerance for risk and different cash flow needs. You make your choices based on your financial situation.
Different Ways to Trade Commodities
There are different ways to trade commodities. The following are some examples:
Direct Investment
It is the most common method of investing in commodities. For example, you can buy gold and silver physically in the form of coins, bars, and accessories.
Buying Stocks
This is another method of trading commodities. For example, if you want to trade energy, you can purchase shares in an energy firm. The stock price will closely track the energy price. If you invest in commodities through direct stocks, you can earn even if the commodity is not doing well.
For example, if you hold shares in a well-established energy firm, you may still earn even if energy prices fall due to the company’s strong fundamentals.
Commodity ETFs
Commodities can also be traded with ETFs, index funds that follow the value of commodities, or commodity-related equities. By buying commodity-related ETFs, you can invest in commodities without taking on as much risk.
The Different Tools & Platforms That Can Be Used To Trade Commodities Online
When trading commodities online, there are a few different tools and platforms that you can use. Here are a few of the most popular ones.
First, let’s talk about the different types of accounts that you can use. You can have an account with a broker like Kanak Capital Markets.
Next, let’s talk about the different tools that you can use to trade. You can use a charting tool like TradingView to see the price of a commodity over time and make decisions about whether or not to buy or sell. You can also use a technical analysis tool like RSI or MACD to help you make informed decisions about the market.
Finally, let’s talk about the different platforms that you can use to trade. You can use a desktop platform like Windows or Mac, or you can use a mobile platform like Android or iPhone.
Final Thoughts
Trading commodities can be profitable if you know the basics and know how much risk you are willing to take. To get the most out of commodities trading, make a good plan and stick to it.
Commodity trading offers two major advantages: diversification and protection against inflation and geopolitical threats.
Diversification: Commodities introduce your portfolio to a different asset class while also providing the necessary balance. Diversification is an important financial idea that helps limit risks. To manage market volatility, a well-diversified portfolio is necessary.
Protection from inflation and geopolitical threats: When inflation is high, commodity prices often go up. When prices go up, investing in commodities lets you keep the same amount of money you can spend.
As a result, they serve as an effective inflation hedge. They also protect against geopolitical events that could disrupt the supply chain and cause shortages.
