Commodities Trading Basics Concepts
Learning to trade the commodities trading market is much easier for beginners when beginners start by learning the commodity trading basics. This way the other commodities trading concepts become much easier to learn because the new commodity trader will have already learnt about the basic ideas before proceeding to the other commodity trading concepts.
The commodity basics that traders should learn first before starting commodity trading are:
What's Commodities Trading?
Commodity Trading is the simultaneous buying and selling of one financial instrument for another. Commodity traders buy and sell for speculation purpose and for the purpose of trying to make a profit. Traders will buy commodity that they think will appreciate in value and sell commodity which they think will depreciate in value.
In Commodity traders buy commodity instruments when they become undervalued and sell commodity instruments when they become overvalued. This is the basic concept of trading commodity, as a beginner if you want to become successful when trading commodity you must learn to buy undervalued commodity instruments & sell overvalued commodity instruments. Many Commodity traders miss this concept and do the exact opposite buying overvalued commodity instruments because that is when these commodity instruments seem to be moving up and up and they sell undervalued commodity instruments because these commodity instruments seem as if they will continue to move lower.
Just like in stock market successful trader buy stocks when the stock commodity price is low & sell stocks when the stock commodity price is high. This is the same trading concept which traders should follow when trading commodity.
What's Commodity Trading?
Commodity trading is the simultaneous exchange of one financial instrument for another, for this reason commodity is traded in symbols known as commodity trading instruments.
What's a Commodity Trading Quote?
Because commodity instrument is traded in symbols, the commodity price at which these commodity instruments are exchange is determined by the commodity trading quote.
Commodity Trading is quoted in the format of decimal places.
What's a Pip?
Commodity is quoted in the format of decimal places. Second last decimal place represents a Pip which is the smallest movement used to calculate profit & loss in commodity market moves.
Pip means Commodity Trading Price Interest Point: it's a one point move in the commodity trading quote.
What's a Lot?
Commodity Trading is traded in units known as lots. There is also the Mini lot which is made up of fractions of the standard commodity lots & the Micro commodity lots which are fractions of the commodity trading mini lots.
What's Commodity Trading Leverage?
Because not many traders can afford to trade standard commodity lots which require a lot of money to trade, there is commodity trading leverage in Commodity Trading which means that traders can borrow money and use the borrowed money to make trades with. For example commodity leverage of 100:1 means that a trader with capital of $10,000 can borrow up to 100 times using the 100:1 commodity leverage option & therefore after borrowing using this commodity trading leverage the trader will have a total of $10,000 multiplied by 100, which means the trader will have a total of $1,000,000. This commodity leverage is what makes Commodity Trading accessible to retail commodity traders because retail traders can begin with little capital of their own & use commodity trading leverage to borrow the rest of the money required for trading. Money that the trader deposits is referred to as a commodity trader’s margin & a trader can continue borrowing money using this commodity leverage option as long as they have the required margin in their trading account. This is why traders must have the required account balance in their account to open the trade transactions they want to.
What's Commodities Trading Margin?
Margin is the particular amount of money that a trader is required to put aside in order to continue holding an open commodity trading leveraged trade. Margin can also be explained as the deposit a trader is required to keep so as to maintain his open positions. This margin is a percentage of account equity that has to be set aside and allocated as a margin deposit for the open positions that are held by a commodity trader.
