Common Myths Associated with Commodity Futures Investment
The commodity futures market is huge. About 25 billion contracts were made in 2017. The market is not well-understood by many potential traders though. There are various myths associated with this market which always mislead new investors. Some of these myths are recent creations but others date back to the early days of commodity trading. In any market, myths arise for a variety of reasons. Sometimes, the perceptions of disgruntled or unsuccessful traders in the market tend to gain traction out of the market and influence those who have never been involved in the market.
The reality of the commodity market is that it is not a difficult market to understand. Most of the myths associated with this market are simply distractions to any potential investors. As a trader, you need to explore the opportunities by yourself before making conclusive decisions about the market. As you will notice, many of the myths that people have about the market are simply vague and inconsistent. Let us look at the various myths associated with the commodities market and why they might not be a reflection of reality.
The Commodities Market Requires Huge Investment
One of the most pervasive myths associated with the commodities market is that it is reserved for a select few investors who have a lot of cash. This is simply not true. While it is not the cheapest market to open an account, it is not exactly an expensive market to invest in. An ordinary account can be opened with just $5000 or less.
The only thing that a new investor should focus on when opening an account is how much money they are investing. Like in other financial markets, you need to be shrewd when making investments in the commodity futures market. You should only invest what you can afford to lose as the market has its ups and downs.
There Is No Money in the Market
Another issue that makes investors avoid to trade commodities is the myth that the market is not profitable. The truth about the commodity market is that it is as risky as any other financial market. Investors who come with the wrong expectations end up losing money. To be successful in any financial market, you need to have set strategies. You should invest in proper information and also keep your investment frequency low. Many professional traders in the commodities market make a living out of it every year. The important issue, therefore, is to identify the space that suits you and take advantage of it.
The commodities market is characterized by a constant flow of capital. With every loss made, profit is made by another person in the same market. This seamless exchange of value makes this market one of the best to gain experience and rise the ranks. The commodities market is characterized by professionalism. Recent reports have shown that markets like cattle futures trading now see automated trading being done by about 60% of traders. Those who have trading skills can, therefore, expect to gain money consistently. The best investment to make when getting into this market is attaining skills.
Taking Deliveries is Part of the Trade
Another major myth associated with commodity trading is that traders have to handle the actual commodities. This myth is mainly apparent because of the name of the trade. People who have never been involved in the market think that traders have to manage physical goods at some point during the trade. This is not the case though. Most individual traders never get into contact with physical goods.
The only traders who handle goods are commercial traders with interests in logistics and other aspects of commodity trading. Individual traders however only own value in the market. There are brokers and other entities in the market that facilitate the actual handling of goods.
The Leverage Levels Are Inflated
The fact that the commodities market has high levels of leverage tends to mislead people to think that the market is not worthwhile. While it is true that higher risks are to be expected because of the huge leverage, it is crucial to note that the rewards are great with good strategy. With technology contributing to about 90% of trading in futures markets, the key to success is planning. The commodity futures market is great when traders plan their contracts effectively.