commodity investing for beginners

How to start invest in commodity market? Commodity Trading Beginner’s Guide

by Rey Sagar

So you want to be an investor and doing research on commodity investing for beginners. Oh! Yes! You are at the right place. In this article, we are going to give you a list of the best commodities to trade for beginners and see a quick walkthrough about commodity trading for beginners.

So if you are here, learn to trade on gold, oil, silver, copper, greens whichever commodity that you want to invest in, we are here to help you.

As a new investor, chances are you started with stocks. A lot of people do right? 

But many people lose their beginning because of the lack of financial education. They don’t teach themselves

  • How to invest?
  • What is the trading market all about?
  • What is the risk that you should consider before you buy commodities or stocks?
  • And more importantly, whether I’m interested or not?

So before you get into the commodity market for beginners ask these questions and if you get the answers then you are good to go, if not you better learn these things before you get into trading, because I don’t want you to lose your money just like the other traders.

Now, with a little bit more experienced, you might want to start branching out your investment portfolio. It has long been proven that a diverse portfolio is the best way to minimize risk and maximize profits as an investor.

After all, spreading out your assets offers protection against market changes, something that is becoming increasingly important in today’s generation.

So investing in commodities can be an important way to diversify your investments beyond traditional Securities.

But as a new investor, Let’s first be clear on exactly,

What commodities are?

Commodities refer to any uniform resources that are considered to be basic goods, from the Greens(which make up your breakfast) cereal to the silver and copper, the crude oil that is refined into the Petroleum you use to drive your vehicle.

 

Commodities are many things, but what they all have in common is they are physical in nature and traded on the world markets. Commodity prices often fluctuate wildly because of changes in their supply and demand.

For Example,

Commodities that are traded are typically sorted into four broad categories, which are:

Each category has its own ups and downs and they have its own range of risk levels, so your choice for which to invest basically depends on your ultimate goals.

Commodities can be a risky game if you don’t know what you’re doing, and it’ll be much more profitable long term to get a crisp on the basics first than to proceed later.

There are several ways to invest in commodities, each with unique benefits and risks to consider. let’s dive a little bit more into the commodity market.

How To Invest In Commodities? Commodity Trading Beginners Guide

The commodity market for beginners is a bit overwhelming but why should worry? we are here to give you every information possible if you are just starting out or want to invest in the commodity market.

There are so many ways to invest in commodities and it's up to you, to choose which works for you.

So many people get into commodity trading especially as a beginner and they don't have the right amount of knowledge on the trading system and eventually, they lose their money. 

And that loss of money will take by the smart traders who count in the top 10%.

So my recommendation is before you invest your hard earn money in commodities or stocks, do some research on the internet, get some basic knowledge or you can read books which is very helpful to become a better investor.

We will give you the shortlist of books on commodity trading just in a minute so stay with us for that because I know that's gonna change your whole mindset as a trader or investor.

commodity investing for beginners

For now, let’s see how you can invest in the commodity market. So we have collected the six ways you can get into commodity trading and the best commodities to trade for beginners.

let’s check out one by one what is all about and what is the thing that you should consider before you get into investing in commodity as beginners.

Best commodity investing for beginners

  • Invest directly in the Commodity

  • Invest in Commodity ETFs

  • Invest in Future Contracts

  • Invest in Commodity Stocks

  • Invest in Mutual and Index Funds

  • Use Commodity Pools

1. Invest Directly in the Commodity

Multiple people commodity trading for beginners

There's no other way to be involved in commodity trading than to directly invest in one of the markets.

If you want to invest by physically buying your commodity, one advantage is that you don't have to go through third-party sellers.

You can simply search for a dealer to sell you a particular good, and when you no longer want it, that dealer will often buy it back, but you got to figure out delivery and storage planning.

If you're buying gold, this transaction may be relatively simpler because you can easily find the coin deal online, who can sell you a bar or coin.

It will be safely stored and later sell it whenever you wish, but it gets a lot harder when you're trying to figure out the delivery and storage of cattle, crude oil, or bushels of corn because when you store in a bulk it will take a lot of space.

For that reason, investing in most physical commodities typically takes too much effort for individual investors.

2. Invest In Commodity ETFs

Fluctuations commodity investing for beginners

If you have a firm grip on stock investing but have limited capital, invest that it's best to approach commodities through ETFs.

ETFs(exchange-traded funds) allow you to trade commodities in a similar way to stocks and shares, that can be bought and sold similarly just like on the stocks. If you are already on the stock market then it might be easier for you to understand.

With prices changing throughout the trading day, investors hoping to purchase commodity ETFs can do so with the help of an online or discount broker.

ETFs are a great option for those who are interested in fluctuating commodity prices, as they can potentially profit from fluctuations in commodity prices without investing directly in futures contracts.

Trading ETFs is also a great way to get exposure to the commodities market with less we since you can hold your ETF shares for as long as you want and they don't expire after a set period of time.

But be aware of some of the fees associated with trading ETFs, or you can simply ask your broker if they offer a demo ETF trading before investing.

3. Invest In Future Contracts

Long term commodity market

Another way to get into commodity trading is through a futures contract.

A futures contract is a legal agreement to buy or sell a particular commodity at a fixed price at a specified time in the future.

Getting started in futures contracts does involve a lot of research on the industry and is typically not recommended for beginner investors. The reason is that a lot of futures investing revolves around speculation.

Investors can, however, work with a broker or opt for contracts with an option to buy the futures contracts.

Important Note: A trader is best on how the commodities price will move. When you think the price will go up, you'd buy futures and when you think the price will drop, you'd sell futures.

In general, you're agreeing to buy X amount of a given commodity at a specific date in the future.

For Example, you might agree to buy 10 tons of coffee 30 days from the date you place the trade.

You are hoping that there is a significant enough difference in price by then so that you'll make a profit.

One big risk of trading commodities is that the margin requirements are significantly lower than for stocks. When you trade on margin, you're trading borrowed money, which can amplify your losses.

Some of the most popular exchanges for futures include S&P 500 Index, Dow Jones Industrial Average, Nikei 225 FTSE 100 index, and Dex Performance Index.

4. Invest In Commodity Stocks

Safe commodity trading for beginners

This is one of the safe ways to invest in commodities.

You can invest in commodities indirectly by investing in the companies which are involved in commodities production.

For example, could buy mining in stocks, oil stocks, or agriculture stocks.

Investing in British Petroleum is a way to get involved in the oil business, and investing in Rio Tinto is a way to get involved in all manner of metals.

The risk associated with commodity stocks typically Centers around the companies themselves. Prices may be negatively influenced by business operations or other company-related factors, as opposed to the just actual value of the commodities.

This type of commodity-producing company won't necessarily rise or fall in line with the commodity it produces. Sure, an oil production company will benefit when crude oil prices rise and suffer when they fall.

But far more important is how much oil it has in its reserves and whether it has lucrative supply contracts with high-demand purchasers.

Unfortunately, there's not a way to reduce this risk completely, but investors can heavily research the companies before purchasing stocks.

5. Invest In Mutual and Index Funds

Best commodities to trade for beginners

Mutual and index funds are a good option for beginning investors as a step into commodities as they work differently from other types of commodity investments.

These funds of liquidity are like stocks, but they don't trade on an exchange with a mutual fund.

You pull your money into a fund with other investors, when investing in commodity mutual funds, you generally have the help of a professional fund manager. Just keep in mind that managed funds tend to come with higher fees.

You can invest in multiple commodities and industries with a managed account, which allows for immediate diversification.

On the other hand, Index funds track the price of a specific commodity over a trading day. Because mutual funds don't use an exchange, they don't track the price during the day.

They wait until the end of the day after the price is settled to determine the commodity's value. By investing in these funds, you get the benefit of professional money management.

This makes investing in mutual and next funds a great option for investors hoping to profit from companies that deal with commodities without directly buying stocks themselves.

6. Use Commodity Pools

Group commodity investing for beginners

Commodity pools are a way to combine resources from a group of investors to purchase futures contracts and options. It is best to hire a Commodity Pool Operator or CPO if you don't have any experience in investing in commodities.

These people collect money from multiple investors to pull into one fund and then invested in a commodity. They will distribute account statements and annual financial reports to the investors involved.

Your CPO will not only manage your fund but also keep records that show

  • who's investing?
  • what they've invested in?
  • and the transactions related to the pool.

They may also make investment decisions based on the fluctuations of a particular market. For instance, they can help you track commodity prices and decide which ones work best for your portfolio.

Using a CPO also gives you more options when it comes to investing. Because they manage a pool of investors, they can use the pooled funds for better investments, creating more opportunities for trading commodities.

Alright, guys, these are the six ways you can invest in various commodities.

While commodities are known to be a risky investment because they could be affected by uncertainties that are difficult, if not possible.

To predict, such as unusual weather patterns, epidemics, and disasters, both natural and manmade on the whole commodities are best suited to investors with a large chunk of capital to spare and at least some experience.

It is best to manage risk by making commodities a part of a balanced portfolio rather thanputting all your eggs in one basket.”

If you’re looking to invest in a commodity for the long term commodity stocks, mutual funds and ETFs are a better option for most of beginners individuals.

Must-Read Books Before You Start Commodity Trading

Let's check out some of the best books that you can pick up before you go into the commodity market. I have made this based on various research and from my own experience after reading it.

I hope it will be helpful for you as well and if you are in the stock market too I absolutely recommend you to check out the article on Best stock market trading books for everyone.

Now, let's see the list of commodity trading books that will help you to become a better trader and improve your decisions.

Must read books for commodity trading for beginners
  1. COMMODITIES FOR DUMMIESThis top commodities book is a good Introductory work on trading and investing in commodities which helps appreciate the kind of risks involved in the commodities market and how to deal with them efficiently.
  2. A TRADER’S FIRST BOOK ON COMMODITIESExcellent first book on commodities, futures, and options if you know nothing about them. 
  3. HIGHER PROBABILITY COMMODITY TRADING – It is a beginner’s guide and has lots of general information on the various types of commodity trading and strategies including trend following, counter-trend, fundamentals, etc.
  4. THE LITTLE BOOK OF COMMODITY INVESTINGShort and snappy guide to investing and commodity trading as a viable alternative to preferred choices of stocks, bonds, and real estate as one of the fastest-growing markets.
  5. DIARY OF A PROFESSIONAL COMMODITY TRADERPeter writes in an informal style and hasn’t hidden anything in this book. If you are contemplating trading, it is worth a read as it gives a trade-by-trade account of an experienced and profitable trader.
  6. TRADING COMMODITY OPTIONS…WITH CREATIVITYThis book has a simple language, lots of real examples and, most important and unique on this book, FAILED examples.
  7. HOT COMMODITIESThe author(Jim Rogers), an expert on commodities himself and having successfully managed nothing less than his own commodities index fund, offers practical advice to investors.

The Best Ways to Invest in Commodities

The 3 best & most effective ways to invest in the Commodity market for beginners, are to buy them directly in their physical form by shares and commodity companies, or by indirectly through a fund or Investment.

Physically means buying and then holding the commodity it presents a storage problem, but there are many solutions available.

For example, there are several billion firms that offer not only online gold dealing, but also storage of the asset buying real gold gives you easy access.

The precious metal remembers to buy only from reputable companies for your security. You can check out the website of the world gold Council for a list of these companies. you will defiantly get a better idea of it.

When you buy physical assets like Commodities, it means real direct exposure to the goods.

There are added costs to these: Like storage, Insurance security, buying and selling fees, etc. This means as an investor you need to buy them at a good price. 

best commodities to trade for beginners

It may be difficult.

If you’re not buying in Huge quantities, you may have little or no advantage.

If you are just buying a small quantity, the second option for investing in Commodities is to invest in commodity companies.

You can deal in oil, gas, silver, green, by simply buying shares in companies such as Exxon Mobil, BP, or Royal Dutch Shell.

The same applies to other Commodities.

Although your options might not be as wide and your country. Your investments will also be subject to the movement of the stock market and changes in the prices of the Commodities.

An investment fund is the most convenient way to access the Aditi Market. These funds also allow you a degree of diversity because they are invested in a variety of Commodities.

Other funds are invested in commodity-producing companies passive funds, have gained popularity, recently eat EPS or exchange-traded.

There are also commodity exchange-traded funds, ETFs that are equity-based, and exchange-traded Commodities, ETC’s.

ETFs invest in shares of The companies while ETCs give investors exposure to Commodities, in the form of shares, ETC track, the price movement of an individual commodity and or commodity basket, they can either be physically backed by the Holdings of the commodity or they can use swaps with other financial institutions.

However, ETFs only moderate particular indexes such as oil. Futures with this there’s little room to move ETC’s allow investors to short or leverage their investments before, also need more space to maneuver.

They can take bets on the prices either rising or falling. Being careful is key because although there could be potential gains, there could also be possible losses. so be aware of those thing before you get into.

Is it worth hiring a commodity trading advisor?

From our perspective, you better don't hire someone for these types of stuff, because they are very critical and If they are stiting next to you then you might be giving them control of your money as well.

If you get daily or even hourly telephone service then you will be behind the market also if you talk once a week, again you will be behind the market.

Commodity trading on a retail scale is nonsense & the margins are thin.

Your commodity trading advisor will be rubbing their hands as your bank balance slowly decrease while you keep paying them, no matter whatever the result came in.

If you seek to invest in commodities long-term, then beware. Commodities pay no dividend and tend to drag down even balanced portfolios.

So my recommendation is you better learn by yourself whether by doing research, reading books which I just mentioned above, getting into the commodity market and see what is all about and whether it works for you or not.

Disclaimer : This is not a guaranteed method to make you rich if you are not willing to put in the work, and we are not responsible for your success and failure, so before you start anything straight from here, you better do more research about it.

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