Why You Should Start Trading Commodities

Asad Dossani

Gold. Silver. Crude Oil. The three most widely traded commodities, abroad and at home. As consumers, we're a big part of this market. Like when you fill up petrol in your car or bike. Or when you buy jewelry for your family weddings.

Mostly, we are buyers of commodities. Unaware of the prices behind them. The prices that move up and down on a daily basis. The long trends that sometimes form.

When I began my career in the financial industry, I witnessed one of the largest commodity trends. The price of crude oil roughly doubled from early 2007 to late 2008. Crude oil prices reached a record high, close to $150 per barrel.

Everyone was trying to understand why this occurred. And most people were predicting a march to $200 per barrel. Of course, crude oil prices crashed afterwards. By nearly two-thirds. I was fascinated then, and still am now.

Just as this trend was ending, a new one began. From late 2008 until 2011, the price of gold more than doubled. It coincided with the US Federal Reserve embarking on its infamous QE program. Fears of inflation and currency debasement drove gold to new highs.

So what actually determines commodity prices? It's all about supply and demand. Crude Oil prices go up when OPEC decides to restrict production. Gold prices fall when the Fed raises interest rates (which of course is rare nowadays).

Commodities are one my favorite asset classes to trade. Here's why: First, the causes of price moves are transparent. Inside information is irrelevant, unlike with stocks. As a retail trader, you have access to the same information as anyone else.

Second, commodities trend. They form trends on both a short and long-term basis. And with the right strategy, we can take advantage. We can identify movements about to take place. And make big profits in the process.

Third, commodities are traded using futures contracts. Futures contracts are great for trading. They are liquid. Transaction costs are low. It's easy to go long or short. And they're leveraged, so you can make efficient use of your trading capital.

Over the next few weeks, I'll be telling you more about how you can start trading commodities. The opportunities are fantastic, so stay tuned!

Would you like to start trading commodities? Let us know in the club. or share your comments here.

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7 Responses to "Why You Should Start Trading Commodities"
Shakuntala jain
24 May, 2020
I want to know more about commodity trading and money market trading. I also want to know about options and futures in your coming episodes. You may suggest me some good books on these topics. Thanks.Like 
05 Nov, 2016
I would like to trade in commodities..but donno how to predict movements..and i think broker leverages are high..Like 
05 Nov, 2016
I really love commodity markets. But I cannot understand trends in that market.Like 
04 Nov, 2016
Have kept away from commodities but would like to follow ur suggestions with may be a few dummy dealsLike 
Nattamai Samyien Balasubramaniam
02 Nov, 2016
Brian J.W. Muchiri
29 Oct, 2016
Looking forward to investing as an international retail and/or institutional investor Like 
Akij Jekjar
28 Oct, 2016
I have traded in base metals and Natural gas. I find that the movements in Natural gas are pretty volatile and are unpredictable. What can I read / watch to better assess NG movements? Thanks!!Like 
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