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3 Tips to Help You Figure Out Which Commodity to Trade

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3 Tips to Help You Figure Out Which Commodity to Trade

For beginner traders, the sheer number of options available for commodities-based derivatives products can be inundating. We outlined three tips to help you tackle this issue.

1. Start with one type of commodities that you are familiar with

Commodities refer to the raw materials that make up the end goods we use in our daily lives such as palm oil, gas and coffee which is why it is best to focus on those that you’re familiar with as you already have some kind of basic understanding about them. As with other investments, it is important to note the risk commodities-based futures contract varies according to the margin.

Start with one type of commodities that you are familiar with

2. Assess the risk and volatility of the chosen commodities

When you have chosen the commodities to trade, make sure you are comfortable with the risk posed by the commodities as different commodities move differently. The volatility of each commodity can be determined through its futures margin, a deposit required by futures exchanges when you open a futures contract. A high margin rate means that the commodity has a large price movement.

3. Go for the one that rocks the boat (or not)

Only focus on one or a handful commodities as you start trading. This way it is easier for you to understand each commodity as you have more time to trade and monitor the ones that are doing well in the market.

Go for the one that rocks the boat

Where to find information about commodities?

You can find information about commodities such as news, articles and spot prices in numerous places and publications like the Internet, daily financial newspapers, commodities magazines or even ask your broker for research and analysis support.

To recap, identify which commodities that you are most familiar with, then assess the risk and volatility of the chosen commodities. Finally concentrate trading one or just a few commodities that do well in the market. When trading commodities, knowledge is power. Always keep abreast of market movements and commodities news and prices.

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Wan Zuraiha Wan Zakaria is a staff writer at Oriental Pacific Futures (OPF) where she writes on investment and trading. OPF is a futures and options broker based in Kuala Lumpur, Malaysia and provides electronic trading, brokerage and clearing services to retail and institutional traders since 2007. OPF is licensed under the Securities Commissions of Malaysia and offers cash-settled derivatives instruments traded on Bursa Malaysia, as well as select major derivatives exchanges around the world.

Oriental Pacific Futures articles published on the Corporate Website (www.opf.com.my) may be reprinted, reposted or distributed free for educational purposes only on the condition that Oriental Pacific Futures and the Corporate Website link information http://www.opf.com.my are included. However, other organizations are invited to link to articles that are available in the public area of the Oriental Pacific Futures’ Learning Resources website. No additional permission is needed for such a link.