Tuesday, 25 October 2016

Online commodity trading Part 1: Basics

There are three basic commodities which are traded the most.

1. Crude Oil
2. Silver
3. Gold

The commodity trading is actually futures commodity trading. In order to understand commodity trading ,first you need to understand what is futures trading.

Futures trading is not actual trading rather it is a contract to buy something such as commodity in some future lying date. For that purpose, to do the contract it is not necessary to pay the full amount but as is the custom everywhere when a contract is done, only earnest money has to be given. This is also true for futures trading. That means when you trade something you have to pay only a percentage of the amount. Now let's say if someone wants to buy a commodity which has x price, it is a contract of december but it is being bought in october at a x/30 price. Now till December, this commodity can be kept but after December either you have to sell the contract or buy the commodity at full price.

So what happens in commodity trading?
So take the commodity trading as futures commodity trading. Only when a contract expires you have to sell this commodity. Now one of the advantages of commodity trading is that, when you buy a commodity you just have to pay very little fraction of money.Now when you buy a commodity you buy in lots. For gold there are three basic lots used those are 1 Oz,10 Oz, 100 Oz. 
Let us say for example you want to buy gold. Now when you buy a commodity you buy in lots. Let us suppose you want to buy 1 lot of 1 Oz gold. Now you know if rate of 1 Oz gold is 1300 Dollars, instead of 1300 dollars you just have to pay around 50 dollars. 
Now there is a huge chance you have to gain high with low investment. It depends on your skills. If rate of the lot reach at 1350 dollars and you sell the lot, you will literally earn 50 dollars. So you investment will be doubled. With the same skill, you can multiply your investment but there is a downside to it . You can lost big here if you play bad.

So I hope to get good feed back and questions on this, I'll be posting more posts on commodity trading , so Stay Tuned!!