Investing in commodities gives the investors great opportunities to earn benefit on their invested capital. However, many investors hesitate to trade in commodities because they have various misconceptions. Also they have heard variety of myths by the general public and investment communities. Commodity tips are quite helpful to get rid off from this kind of misconceptions, as this gives you the complete scenario of current market performance.
These myths are probably created by facing loss in commodity trading, frustrated traders or by those who view commodities as too difficult of an investment to understand. You might have heard as a quick response by many unsuccessful traders is that nobody can make money from trading commodities because commodities are too volatile. But this is not true, people do make money trading commodities.
Let us see some myths of investing in commodities.
1. Too much leverage: When investing in commodities leverage is the biggest problem, by far. Normally, in future margins you only have to put up about 3 to 15 percent of the total value of a future contract. Which is quite less than 50 percent that is required for stocks. Whereas, in reality
commodities are not very volatile than stocks as an asset class if you remove the leverage factor.
Their investment is wiped out, if the commodities move down a little in value. To become a successful trader, you should trade far less contracts than what the margin requirements allow.
2. Taking delivery of commodities: Only the commercial players are involved in taking and making delivery of commodities.So you need to worry about this thing. The futures contracts are needed to be closed before the first notice day, which usually occurs a few weeks before the contract expires, you should have absolutely no worries about this. If due to some reason you forget about the first notice day, your broker will certainly catch it and contact you.
3. You don’t have enough money to trade commodities: To trade in commodities you need a broker first. The commodity brokers will allow you to open an account with 5,000 rupees whereas, some even start with 2,500 rupees. This money which you will invest should be risk capital as commodities can be a risky investment. The main problem with this size of account is that investors take on too much risk for their account size.
Commodity trading is risky for both amateur traders and professional traders. However, you can also earn well by trading in commodities by taking services and ideas about market performance from a well known stock market advisory . If you do some research and follow some trading strategies then this will surely give you better chances of success.
I am financial analyst and I like to read and write about the stock market. I wrote many articles on stock market. Hope you will find my articles helpful and interesting. And for investing in commodity market.