Thinking about going into online trading of commodity futures? If so then I am sure you are aware there is a lot of risk involved. Let’s have a look at the risk and how we can reduce it to a minimum.

With commodities trading, in comparison to stocks and shares, there is a positive factor. There will never be a time when your investment is totally worthless. For example – gold, natural gas, corn will all have some financial value. It may well drop at times but it will never be worthless. Stocks and shares however can be worthless. Bankruptcy has hit many a company in the past’ months.

Keep your wits about you and do not get carried away with your successes. Do not either have the mentality of making up your losses as soon as possible. If you do then you end up gambling and this is not what commodity trading should be about.

Many commodity traders, particularly those that are fairly new to the business, try to utilize too much leverage. As an example of this lets take 100 ounces of gold as a contract with a value of $1000 an ounce. Total value is $100,000. The margin (deposit) will probably be around 10% of the value of the contract, thus $10,000.

Let us take an example to illustrate things, shall we. Let us presume that we invest in 100 ounces of gold which is selling at $1000 an ounce. The value of the gold would therefore be $100,000. The margin or good will deposit we have to make is $10,000 towards the $100,000 worth of gold – a total of around 10% is normal.

If things do go well then great, life is good and all is well, but chances are that if you continue to trade in this way – which is to some extent a gamble – you will lose out in the mid to long term.

With online trading there is a large advantage over what was previously available because of the speed of update to market fluctions. Login to your trading account at any time of day you like and you are updated to the second, or at least to the minute, regardless of the country your investments are made in.

Trading online commodity futures does provide for advantages over the old way because keeping up to date with the market is simple and very fast. Its perhaps even easier now for the inexperienced trader to feel safe due to this online flexibility and speed of action and thus become over exposed in the first place. Leverage being offered by the broker is a great thing but only when used wisely so be sure to do things in moderation.

Want to learn more about commodity future trading? We specialize in natural gas futures.