Most investors are hesitant to make trade commodities because of various misconceptions or myths taken by the public at large and at times in the investment community. Such deep-rooted myths go back several decades. They were probably created by commodity traders that lost and were frustrated or by people who see the concept of commodity trading as too challenging to comprehend.
In reality, individuals can and have made money through trading commodities. Several traders have succeeded, including private, newbie traders who undoubtedly know the commodities market. This article highlights a few of the myths and misconceptions regarding investing in commodities.
There Exists Significant Leverage in Commodity Investments
Leverage is, by far, the most significant challenge when making commodity investments. Unlike stocks where there is a required 50% margin, a futures contract for commodity investing only necessitates that you raise three to fifteen percent of the aggregate value. Most new commodity traders are unaware of how to manage this recently discovered valuable gift. It would be best if you strategized on trading fewer contracts than what is allowed by the margin requirements.
You Have to Take Delivery
Most people think that they have to make preparations to accept the delivery of tangible goods. As an individual investor, this is not something that affects your activities. It is only the players involved in a commercial level that take and make commodity delivery. Provided your futures contract is closed before the FND (First Notice Day), happens typically a couple of weeks before the expiration of the agreement. If you fail to remember the first notice day for whatever reason, you will receive communication from your broker.
You Need a Huge Sum of Money to Get Started
Most people avoid online investing as they think a significant amount of money is required. However, most commodity brokers will let you open an account for $5,000, with some accepting even $2,500. It is risk capital that you can bear the risk of losing since commodities are a risky investment venture.
Challenges emerge with accounts of this magnitude when investors accept a lot of uncertainty for the accounts’ size. Sometimes new investors take a chance and gamble everything on a single trade. If you aim for a decent return of 25% every year, you will have done so much better in the long run than if you attempt to shoot for the jackpot.
Everyone Suffers a Loss
Some people indeed lose money as they trade commodities. Nonetheless, the losers are generally ill-equipped investors who dived into the commodity market and lost their money in under six months without ever going back. Others become addicted to the markets and keep attempting to make a win through the same action plans, although they continue losing. The upside is that commodity investments are a no-sum game. It implies that for each dollar that is lost, another person gains a dollar.
Typically, the professional money managers and commodity traders are the real winners as they continually make money each year. The non-professional commodity traders who earn money are mostly those that trade for a prolonged period of 30 years or more. In the long run, such a trader could make money from many commodity investors with less experience. Successful non-professional and professional traders typically trade more significant amounts of money.
In one year, a professional trader handling $1 million could make profits worth $200,000. The majority of the funds would probably be from 40 traders that lost $5,000 in the markets. The successful traders usually have settled their duties by learning the best way to trade commodities. They adhere to a struct trading order that many losing traders fail to adopt.
The Takeaway
Whether you are a newbie or an experienced investor, you can make money through trading commodities. If you conduct thorough research and adopt a viable trading strategy, your chances of success may be much higher. Such measures, along with sound skills of money management, will be beneficial. The common misperceptions regarding future trading of commodities fail to provide a clear picture.
