CFDs trading has been a source of solid passive income for many. But, the pandemic suddenly flipped the light switch – Commodity CFDs trading income since 2020 has risen by 193%. Quite ironically, the Financial Conduct Authority (FCA) also reveals that, on average, 82% of traders lose money.
Why such a baffling gap in these values? Perhaps much has to do with understanding the basics. When done correctly, CFD trading can be a fascinating way to diversify income. This guide will reveal all the nitty-gritty. Here are some ways to get started with commodities CFDs trading.
Identify Your Target Market
The first step to establishing the right foot in the world of CFD trading is choosing your ideal market. Which type of commodity would you want to start trading in? Since CFDs trading is easy to access in popular oil and gas markets, oil is the top commodity.
Then comes gold and silver; some people even choose to trade wheat as a commodity. First, you must research which markets show high demand and choose them as your target market.
Choose the Trade Direction
The next thing to determine is the direction in which the market is moving and is expected to move. For instance – trends in the oil and natural gas industry indicate that fuel prices will rise further shortly.
For a market such as this, the direction is up. Your line of action then should be to buy or ‘go long.’ But, if you’ve chosen a commodity whose price is expected to fall in the near future, sell or ‘buy short.’
Set the Trade Volume
Breaking this down further, once you’ve selected the market and its direction, you need to decide the number of units of the commodity you wish to purchase. This will entirely depend upon the amount available to you to invest as well as how diversified you want your portfolio to be.
Ideally, your portfolio should have a higher concentration of popular commodities such as gold, silver, and oil when compared to the others.
Leverage Risk Management Tools
Commodity CFDs trading involves an element of risk. So, besides portfolio diversification, it is also vital that you leverage specific risk management tools such as Stop Order and Limit Order.
These orders or tools can manage risk without you having to monitor the market constantly. For example, stop orders are issued to stop trading once the market price hits a certain level. A limit order is an instruction to trade once the market hits a certain price level.
Using these risk management tools, you can stop losses and leverage high markets.
Keep a Tab on Your Market Position
Like specific investment instruments such as equities, trading is highly dependent upon the market conditions. This makes it vital for you to monitor your portfolio from time to time. For example, check the funds in your account, trading status, etc.
It is not uncommon to find the market suddenly shifting against one’s favour. So there’s no harm in always being prepared.
Bringing to a Close
Now that you know the fundamentals, you can set foot in the commodity CFDs trading world.
Other than the technicalities mentioned above, the secret to becoming a successful trader lies in your willingness to learn and adapt to market changes, being aware of commodity attributes, understanding market resistance, and being unflinchingly disciplined.
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