Commodities offer diversity for an investor’s portfolio, which reduces exposure to any one financial market and, therefore, it’s important in helping to manage risk. Commonly, trading commodities strategies was a more complicated affair and available only to professional traders. With so much advanced technology, the darwinism of online trading, commodity trading is more reachable than ever before. In this article we’ll see what commodities strategies and commodity trading strategies are, and will also see step by step how you can construct your own commodity trading strategies. 

Commodities are either raw materials or agricultural products which are generally used as the building blocks for other goods and services. The term commodity covers a wide range of goods, starting from sugar to crude oil. Commodities of the same quality tend to be fungible with one another. 

How To Trade Commodities

Commodities are real, palpable assets which can be bought and sold. Buying and storing these physical assets in large enough quantities to sell for profit would present logistical difficulties for the majority of traders. There are several ways to trade commodities without ever having to take physical ownership of the commodities themselves. Each of the financial products has their own advantages and disadvantages, providing you with a lot of choices about the best way for you to trade commodities. 

How To Create Commodity Trading Strategies

Given the immense array of goods incorporated in the term commodity and the different ways of trading, it’s impossible to provide an all-encompassing trading strategy that will be successful on every type of commodity. The different type of commodity trading strategy you choose will also depend on what type of trader you’re. Commodity trading strategies that work for a day trader may not work for a swing trader.  

It’ll be difficult for you to formulate your own commodity trading strategy for the particular asset you intend to trade. Here’s some ideas for our side i.e, Commodity trading strategies are based on either technical analysis, fundamental analysis or a mixture of the two. In order to go ahead in commodity trading, you should use some form of fundamental analysis, as commodity prices tend to be sensitive to global events.

Fundamental Commodity Trading Strategies

Now that you know some of the different factors that influence the price of commodities, you might decide to build commodity trading strategies out of this information. For instance, imagine you heard about an adverse event which was likely to ruin the harvest. For this information, you could predict that this is likely to reduce the global supply and therefore, raise its price. This might prompt you to go to a long position. There are many different frameworks where you can use information about what affects the price of commodities to your advantage within a commodity trading strategy.  

Conclusion- You should now stand in good stead to start creating your own commodity trading strategies. Once you have decided which commodity you want to trade, research what drives the global supply and demand of that commodity.

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