Commodity Trading – 5 Ways To Avoid Losses

Stock trading is more likely suitable to those who have long termed financial goals, whereas commodity trading is highly likely a preferable option for investors who expect quick gains. commodity trading losses can be avoided in 5 different ways.

In a commodities market, trading is done on raw products instead of manufactured products. The price fluctuates depending on multiple factors, such as economic conditions, political changes, government policies and cross border consequences.

With so many factors contributing to the price volatility of the commodity market in India, indeed it is understandable that similar to profits, the losses can be huge and unexpected.

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In today’s post, we discuss the key commodity market trading tips to protect your assets from vulnerabilities. Indeed, there is a higher amount of risk in commodity trading, but with a few expert recommended solutions, anyone can maximize their returns while minimizing the losses.

What Is Commodity Trading And How Does It Work?

Commodity trading involves an exchange of various assets based on future contracts. In India, trading includes.

• Spot contracts: It means an instant settlement of trading.
• Commodity futures: In this method, trading is settled at a future price. It is an obligation to settle trading at a definite price.
• Options contract: It allows buying the commodity at a predetermined price, but the buyers are not obliged to the set price.

Traders can use a maintenance margin to reduce the risk of losses. However, a 5-10% margin is not suitable for adverse conditions. Therefore, investors should have certain strategies in place to make sound decisions. In the next section of this post, we will discuss how traders can reduce the loss and increase the size of returns on their investments.

Top 5 ways to avoid losses during commodity trading in India

Commodity trading adds a substantial amount of risk to your investment portfolio due to the expiry period of futures. Here are some key investment strategies that can help you avoid losses during trading.

Avoid investing everything in a single commodity trading:

One needs to be strategic about the risks and returns. Beginners who lack market knowledge and are not sure how susceptible their investment decisions are to price fluctuations should diversify their portfolios.

Pick distinct assets. This offers peace of mind. In case one commodity doesn’t perform well, you can keep your hopes high from other assets. It is important to refrain from speculative trading. Never make an investment decision for a commodity just because you heard something good about it. Rather, diversify the capital and reduce the chances of getting losses.

Learn how to use stop-loss:

To limit the amount of loss, another useful method is stop loss. It is an advanced order, where you sell a specific commodity when it reaches a certain price point.

It is important to learn how commodities work to determine a break-even point. If you are unaware of the pre-speculated price point, you can consult with an expert and learn how to put the right stop loss in order to minimize your losses.

Try to stay up to date about the market conditions

Probably not a useful suggestion for beginners, though one needs to pay attention to what’s happening. It is important to understand that not every price increase results in sudden growth of the commodity. Sometimes, the price fluctuates in the opposite of the expected direction and can cause huge losses.

The basis of your decision should not be based on luck. You need to learn about market conditions to make key decisions. You can get a hint from news articles or get expert tips provided by certain investment channels and online experts.

Wait before you book profits

Booking profits is the most recommended strategy to earn huge in commodity trading. However, when investing in the commodity market in India, you should go slowly to book maximum profit and avoid any type of commodity trading losses .

Stay calm and avoid making decisions in a hurry. Most investors tend to panic and book profits sooner than required. This will limit your gains. Experts suggest revising the stop-loss and book profits to make sound decisions.

Start with less amount

The golden rule of investment is to begin with only the amount that you are not afraid to lose. Commodity trading is all about patience and sound decisions. If you invest a lot of money and start to panic with the first ever price fluctuation of the day, you would not be able to earn profits and there are chances of commodity trading losses.

Therefore, experts suggest that one needs to stay away from rumours. Don’t expect to make a huge profit instantly. Invest small sums and expect the unexpected. This will help you to stay patient and take the best decisions suitable to minimize losses and accentuate your gains.

Bonus tip

Diversification is considered the holy grail in commodities trading. Therefore, you can begin by dividing your sum into equity and commodity. Referring to the idea of minimizing losses, it is suggested to stick to the commodity class that you have experience in.

Market monitoring is essential to reduce the size of the loss in Commodity Intraday Trading. Hence, you should pick a commodity class that you are able to monitor and analyze with prior experience. Experts around the globe suggest that crude oil is the best commodity sector that can be selected to maximize profits. However, keep in mind that crude oil prices fluctuate the most due to varied global scenarios. If you are capable of keeping up with the news of the changing geographical and political scenarios, it is a wise decision to invest in crude oil.

Closing Thoughts On Commodity Market

Along with beginners, several seasoned traders find commodity trading slightly complicated. Due to the massive price fluctuations, the chances to gain profits are equal to face losses. With sound knowledge, you can make an informed investment decision and gain profits despite the marketing conditions. It takes an in-depth knowledge of trading strategies and a will to constantly monitor the market. If you are unable to do all the technical analysis on your own, you can rely on experts for high accuracy of commodity stocks on Commodity Samachar.

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