Many traders are unwilling to trade commodities due to an array of myths or misconceptions by the general public and even the trading community. These myths date back many years and were likely created by frustrated, losing commodity traders or by those who view commodities as too difficult of an investment to understand.
You may hear things like commodities are too volatile or you will have a truckload of soybeans dumped on your front lawn if you trade commodities.
Or, a quick response by many unsuccessful traders is that nobody can make money from trading commodities. Well, obviously people do make money trading commodities.
By far, leverage is the biggest problem while trading in commodities. Normally, a trader only has to put up about 3 to 15 percent of the total value of Futures.contract in futures margin.
To be successful, you should trade far fewer contracts than what the margin requirements allow.
This is something traders really don’t need to worry about. Only the commercial players are involved in taking and making delivery of commodities. As long as you close your futures contract before the first notice day, which usually occurs a few weeks before the contract expires, you should have absolutely no worries about this. If for some reason you forget about the first notice day, your broker will certainly catch it and contact you.
Many commodity brokers will allow you to open an account with $5,000, while some even start at $2,500. This money should be risk capital as commodities can be a risky investment. The problem with accounts of this size is that investors take on too much risk for their account size. They tend to roll the dice and bet it all on one trade. Don’t fall into that trap. If you shoot for a respectable return of 25 percent a year, you will do much better in the long run as opposed to trying to hit a home run.
The fact is that many people do lose when trading commodities. However, the losers are usually ill-prepared traders who jump into the commodity markets and lose within six months, never to return again.
Others get addicted to the markets while trying, again and again, to make a killing with the same strategies and just keep losing.
You can make money from trading commodities whether you are a novice or very experienced trader. We will not tell you it is easy, but if you undergo a professional training and use a good trading strategy with sound money management skills you stand a much better chance of success. So, don’t run from trading because you heard one of these myths that don’t give you a true picture of trading in commodities.