Gold is so popular in India that 11 out of 10 people in the country are interested in owning it. That statistic may not be true but you get the drift. This piece of yellow metal has captivated a billion people for thousands of years. Other commodities like agricultural products, energy and livestock don’t hold the same degree of fascination. That said, the commodities market is a popular avenue among investors in the country.
But if you are newcomer to commodity trading, you need to be careful of avoiding some of the common mistakes people make. It’s always better to learn from experience, even if they are not yours. So, let’s look at a few banana skins you should look to avoid in the field of commodity trading when you set out on the road to commodities investing.
1) Investing for the short term
Gold is a very valuable asset among Indian investors for short term investments. However, to avoid mistakes to avoid while investing in gold, don’t invest with unrealistic expectations. Hopes of a 50% appreciation in gold price in six months or a year can leave you disappointed. When you invest in gold for short term investments, it is better to have a long term approach. This can help you ride the volatility in the short term.
In addition, be careful not to depend too much on gold during short-term financial requirements. In case you liquidate your investment at a short notice, your returns may be much lesser than expected.
2) Not maintaining a stop loss
When it comes to investments, everyone makes mistakes. But the good investor knows when to exit an investment at the right moment and minimize his losses. It is well known among investors that commodity trading comes with a certain amount of risk. A wrong investment can result in big losses for the investor if he is not careful. That’s why it is important to maintain a stop loss to personally protect your trading positions.
3) Going big right from the beginning
Many novice traders make the mistake of going big on their first investment itself. This can be a risky proposition in commodity trading. If you are new to the market, here’s one of the most important commodity trading tips -- it is best to begin your journey with a small sum of money. This way, you protect your capital against unnecessary losses. Over time, you can improve your trading record by expanding your knowledge on global events and price fluctuations in the market. With respect to gold, you can invest in even 1 gm through gold ETFs online. This is another one of the crucial good investment tips to begin your investment journey into commodities.
4) Lack of diversification
Never invest your entire capital in a single commodity. For example, you might find the metal sector very attractive or perhaps the energy sector shows great potential for high returns in the near future. Regardless, it is better to allocate your capital into different assets to minimize your losses in case a single commodity or sector falls unexpectedly.
To sum up Commodity trading offers great opportunities for good returns. However, it is important to remain calm and patient when you invest in commodities. When compared to investment in the stock market, commodities futures contracts provide investors with a greater degree of investment flexibility. That’s why, it is important to be aware of your personal risk-reward ratio and invest accordingly.
It is important to know that not all commodities are equally risky. To ensure your te right pic, you may want to gauge the amount of risk suited to your profile. This is crucial, because commodities undergo extraordinary price movement on the slightest hearsay of critical news.
Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.