Why trade commodities?
Commodities is one of the largest investment sectors in the entire world, is known as the futures industry.
This is where we trade the world’s food supply, known as commodities.
This market is primarily designed around the use of leveraged accounts and can be used for aggressive growth investments. Unlike mutual funds or bank CD’s, leveraged accounts come with added risk, but where there is little risk there’s also little reward.
One such method of leverage can be found in the commodity or futures markets, such instruments are used to trade common everyday items, such as orange juice, coffee, unleaded gasoline, natural gas or other such commodities. In the futures markets we can even trade such things as the Dow index or the S&P 500 index, you can trade these indexes through the futures market just like you would trade companies such as, IBM or Microsoft over at the stock exchange.
Commodities just like stocks are traded on exchanges, but with a greater degree of leverage which reduces the amount of time you must wait for assets to compound.
If you can learn to deal with this one difference, then the profit potential can be significantly higher than you might find one trading the same exact market from the stock market side. Here it is, here’s the downside.
When trading commodities you can lose more than your initial investment, that’s the catch. You can lose more than your initial investment while in the stock market you generally can’t.
Here’s an example:
Let’s say you invested your five thousand dollars and you were wrong, and the market turned against you in the stock market or in the cues, in this example, the maximum amount of money you could lose would be your initial investment of five thousand dollars, once the market move against you that much, you’d be done, you’d be out, you have lost your total investment and well, too bad for you.
Well in the futures market you’re accountable for all your losses, not just your initial investment. So if you invest the same five thousand dollars and the market turns against you, and you let your losses accumulate, and accumulate, and accumulate, all the way up to say ten thousand dollars, before you exit you lose all ten thousand dollars, not just your initial five thousand dollar investment.
Hey want to know a secret?
How would you like me to tell you how to keep from losing more than your initial investment?
Here it is, here’s the big secret, DON’T GO ON VACATION WHILE TRADING THE COMMODITIES MARKET.
That old technique of Buy-&-Hold, that’s for the other guy. Watch your trade and when the market starts to move against you get out. Learn to use stop-loss orders and risk and money management techniques and strategies.
Frankly these should be strategies you should be using while trading the stock market as well. Just because you can’t lose more than your initial investment, doesn’t mean you should trade it with any less care concern.
You don’t know what these strategies are or how to implement them?
Then it’s time you begin your educational track.
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