What Are the Risks in Trading In Commodity Markets?
In commodity trading, there are risks that you have to absorb. Commodity marketing trading is a winning and losing trade. When you lose, someone gains in your favor, and when you gain, someone losses. However, the best thing you have to understand is that you need to be psychologically prepared for losses and optimize your gains. And because commodity markets are difficult to speculate, there is a way you can trade to be on the safer side.
The bottom line is that this trading is not risk free and whereas you can minimize the risks, you cannot eliminate them. Even the big gainers in the trading also lose a lot of money but again they make more money than they lose. It requires composure, and persistence, while still focusing on the market trends.
Although commodity trading has a high risk, you decide what you can lose. The trading in commodity market has been likened with betting in a casino. If you have not yet mastered the strategies of winning, it is always good that you place small bets. This way, when you lose you do not feel the pain. However, small bets can also deter you from making big progress in your investment.
There is need to moderate what you want to risk in commodity trading. You can carefully trade with about $100 or 200. With this kind of money, you may trade for a long time and only lose a few thousands of dollars. What challenges many people is patience. Traders do not want to be patient enough when trading.
Trading in commodity markets requires self control. If you cannot control the way you trade, then you will fall among the unfortunate ones. You will lose big money and this is because you take big risk hoping that you will win big money and get rich quickly.
Similarly, people lose their money when they blindfolded engage with a broker. When commodity prices go up, there is unlimited gain because there is no limit on how high the price can go. On the other hand, risks on prices can only go to zero point. However, when trading in commodity market, you can offset your trading position when the trade goes against you and this enables you to limit your loss.
Although there is no guarantee of certain loss limit, you can limit the loss to fall within a few hundred dollars. In most cases, losses will fall within $100 of the projected amount. However, rarely do losses occur within the normal ranges. There are unusual circumstances where losses can stretch to thousands of dollars than you expected. Such losses can be brought about by things like wars that affect the supply and demand of the commodities and this in turn affects the prices.
In such circumstances, the market’s liquidity evaporates so rapidly. In fact, thousands of dollars could be lost within a span of few seconds. Other situations that can induce unexpected losses in commodity trading are such as floods, freezes, droughts and currency interventions by governments.
In essence, the best way traders can manage the unexpected risks is by conservatively trading in the market. You also need to understand that you cannot avert losses by just being a brilliant strategist in the trade or planning your trading carefully. Losses are part of the trading process and you have to live up with them. All you need is to minimize these losses.