Wow! We are almost at the end of this part of the series on making money trading online. And today, I will introduce you to the world of commodity trading and how to make money from it online especially in Nigeria. Let's begin.
What is a commodity? What are commodity currencies? How can you make money trading them?
A commodity is defined as a marketable item produced to satisfy wants and needs. But in the financial world, commodities typically refer to a basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often used as inputs in the production of other goods or services (i.e primary goods). The quality of a given commodity may differ slightly, but it is essentially uniform across producers.
The basic idea is that there is little differentiation between a commodity coming from one producer and the same commodity from another producer - a barrel of oil is basically the same product, regardless of the producer. Compare this to, say, electronics, where the quality and features of a given product will be completely different depending on the producer.
Some traditional examples of commodities include grains, gold, beef, oil and natural gas.
More recently, the definition has expanded to include financial products such as foreign currencies and indexes. Technological advances have also led to new types of commodities being exchanged in the marketplace: for example, cell phone minutes and bandwidth.
The four categories of trading commodities include:
- Energy (including crude oil, heating oil, natural gas and gasoline)
- Metals (including gold, silver, platinum and copper)
- Livestock and Meat (including lean hogs, pork bellies, live cattle and feeder cattle)
- Agricultural (also called Soft commodities, including corn, soybeans, wheat, rice, cocoa, coffee, cotton and sugar)
The sale and purchase of commodities is usually carried out through futures contracts on exchanges that standardize the quantity and minimum quality of the commodity being traded. For example, the Chicago Board of Trade stipulates that one wheat contract is for 5,000 bushels and also states what grades of wheat (e.g. No. 2 Northern Spring) can be used to satisfy the contract.
Sites that give very useful information on commodities trading include investopedia, Futuresmag,
A commodity currency is a name given to currencies of countries which depend heavily on the export of certain raw materials for income. These countries are typically developing countries, e.g. countries like Burundi, Tanzania, Papua New Guinea; but also include developed countries like Canada and Australia.
In the Forex market, commodity currencies generally refer to the Australian dollar (AUD), Canadian dollar (CAD), New Zealand dollar (NZD), Norwegian krone, South African rand, Brazilian real, Russian ruble and the Chilean peso.
Most of the international trading platforms that allow one to trade in stocks, options and futures also allow traders trade in commodities, especially the hard commodities such as gold and silver. But make sure you don't rely too much on (high) leverage as commodities can be very volatile to trade using a high leverage/margin. Wikipedia lists some popular softwares too.
In Nigeria, the Abuja Securities and Commodities Exchange (ASCE) is primarily involved with the trading of commodities such as maize, sorghum and millet, as opposed to trading in securities such as bonds and company stock.
Check their website Abujacomex, you will need to pay N50,000 (about $270) to become a member. And you can use this link for the Abujacomex realtime trading platform. The name of the association is Commodities Brokers Association of Nigeria (CBAN). This links to the facebook page of the NCX - Nigerian commodities exchange.
I haven't personally linked up with any expert in this yet, but I will, very soon so that anyone who wants to fully integrate him/herself to making money trading commodities in Nigeria, will find it much easier and helpful through this blog. For now, please use the links above.
Making money trading commodities is not different from currencies or stocks. It involves developing a strategy and avoiding high margin trading.
As Franklin Sanders of goldprice.org says, buy gold or silver physically, or at least as if you want it delivered to you physically. So don't 'borrow' on margin to buy what you can't afford. Little profits over time is key.
Join me as I wrap up the section on online trading with mutual funds and ETFs tomorrow.
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