Commodity markets have a significant impact on our economy, and it adversely affects the lives of common people. A commodity market is a place for buying, selling, and trading primary or raw products rather than manufactured products. Traders dealing in the commodity market are well aware of the fact that the probability of incurring huge profits is almost equal to the risk of massive loss. With massive gains, come the adverse risk of losing your entire money. It is a well-known fact that trading in commodities comes with huge risk (and also returns). However, this risk of losing money can be avoided if you follow these simple commodity trading tips:
1. Stick to a plan
Having a definite trading plan is very important in commodity markets. This is because there will be times when a delicate situation might arise. In such cases, emotional stress might take a toll on traders. This might lead to poor decisions, ultimately increasing the probability of inculcating huge losses. As traders, you should be aware that emotional stress is a liability to commodity markets and can be very dangerous.
2. Trail your stop loss to break-even point (BEP)
Stop-loss is an automatic order to buy or sell stocks, once the stocks reach a specific pre-determined price. This is done to limit the loss on security. As a trader, you might consider trailing your stop loss to BEP as soon as the market moves in your favour. Though you may not always earn profits from this method, it works as downside protection.
3. Diversify capital
It is crucial to manage your assets in commodity trading as you do not want to risk your entire money and incur heavy loss. Hence, it becomes essential to articulate the proportion of risk and reward. You should be aware of the amount of risk you can afford on your capital. It’s a good choice to never invest your entire corpus in a single commodity. A wiser option would be to allocate and diversify your capital in different commodities, so any loss due to a wrong trade can be balanced by profits from other trades.
4. Be prepared
You should always be prepared while trading in commodities. No matter, if you are a professional or beginner, you should not get carried away to invest your entire capital in hopes to earn gigantic profits. You might consider going small if you are a beginner as it minimises the risk. If you want to trade safely in commodities, you should try not to get influenced by news or fellow traders.
5. Play Slow
Usually, traders with little or no experience hurry to book profits on their winning trades as soon as possible. They also tend to hold on to the losing trades, which in turn accumulates losses. You should try not to close winning trades too soon. You should try to gain maximum profits in such trades by continuously revising your stop losses. You should not let fear, anxiety, and greed cloud your judgment.
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