Trading commodities for a living is a dream of many aspiring traders, but only a small number of people can make this a reality. Although it is a difficult process, there are several things you can and must do in order to make this a profitable and lasting venture.
Available Funds
Do you have enough money to trade for a living? For some reason, ambitious new traders think they can start trading commodity futures with $10,000 and they will make enough money every month to live on. It is certainly possible, but highly unlikely. Trust me when I tell you this won’t work.
To trade for a living, you should have enough money saved that you can live on for at least a year. You will also need to have a commodity account funded with enough money that you are able to generate enough profits every year. If you want to make $50,000 a year, you should have a $250,000 account. If you are able to make a 20 percent return each year, you will make $50,000.
Many new commodity traders think they can easily make 100 percent every year, but that is being unrealistic. You can certainly make those returns in a year trading commodities, but you are probably taking on too much risk and putting yourself in jeopardy of losing your trading job. Think of this as a business and not a trip to Las Vegas. Always live to trade another day.
Trading Plan
It is a must to have a sound trading plan in place if you expect to make a living from trading commodities. You should at least have had some success and a profitable track record in trading before you begin doing this full time. Your trading plan should be in writing on your trading methods and risk controls. This is your business plan that will guide you through day-to-day operations. Don’t overlook or procrastinate on a trading plan.
Don’t Trade to Pay the Rent
The absolute worse thing traders can do is put themselves in a position where they have to make enough money every month to pay for rent and groceries. That is a serious case of having your back up against the wall. This will cause you far too much stress and make trading much more difficult.
We do not make good decisions when we are under too much stress. This is an almost a certain recipe for disaster. I’ve seen some traders pull it off for a while, but you will always have the inevitable drawdown that will throw you into a tailspin. A losing month often makes traders take additional risks in the following month and that puts the account into jeopardy. This is when meltdowns occur and accounts get wiped out.
Making it Work
The people who make a living from trading commodities take it very seriously. They are prepared with a well-researched and tested trading plan. They follow their plan like a robot (most of the time) and don’t take on too much risk. It is tempting to bet the farm on an excellent trade setup, but it is not worth the risk. Not every trade works, no matter how good it looks.
Most people who try trading commodities fail. Don’t expect this to be easy. It is wise to trade part-time initially and become a profitable trader for at least six months before you try to become a full-time trader. The learning curve is normally about one to two years before most traders can consistently show profits. Remember, make sure you have plenty of funds available for trading and living expenses and treat this endeavor like a business.
FAQs
Trading commodities for a living is a dream of many aspiring traders, but only a small number of people can make this a reality. Although it is a difficult process, there are several things you can and must do in order to make this a profitable and lasting venture.
What does it take to be a commodity trader? ›
A master's and even doctoral degree makes you a more competitive candidate. Additional qualifications include registration and licensing with the Financial Industry Regulatory Authority (FINRA) as well as work experience at an investment firm.
How long does it take to learn to trade commodities? ›
A hard-working person can learn the basics of commodities trading in a couple of months, but it can take a lifetime to master the ins and outs of these futures markets.
How to learn about commodity trading? ›
How do I start trading commodities? First, choose from 35 commodity markets, or commodity-linked stocks and ETFs. Next, decide whether to speculate on market prices by going long or short. And finally, you'd need to open a live account with a provider who offers commodity trading.
How do I start a career in commodity trading? ›
How to become a commodities broker
- Earn a degree. Consider degrees in business, economics, accounting or finance. ...
- Get a licence and certifications. ...
- Build your skills. ...
- Gain work experience. ...
- Apply for jobs.
To work as a commodity broker, you are required to be certified by the National Futures Association (NFA). The NFA oversees licensing for stockbrokers and commodity brokers. Typically, you study for the licensing exam while working in an entry-level position or internship.
Is it hard to become a commodity trader? ›
One does not become a commodity trader overnight. To gain experience in this field, you may have to spend months or years learning the trade. Once you have the skills, you can consider working as an individual commodity trader or applying for a related job in a trading company dealing with such assets.
Who is the biggest commodity trader? ›
The four leading privately-owned energy traders — Vitol, Trafigura Group, Mercuria and Gunvor Group — have made combined net profits of more than $50 billion in the past two years, according to Bloomberg News calculations. By comparison, in 2018-2019 their combined earnings were just $6.8 billion.
How many hours do commodity traders work? ›
Securities, commodities, and financial services sales agents usually work full time and some work more than 40 hours per week. In addition, they may work evenings and weekends because many of their clients work during the day.
Which commodity trading is best for beginners? ›
1. Metal commodities: Metals like iron, copper, aluminium, nickel are used in construction and manufacturing, while platinum, silver and gold are used for jewellery-making and investment purposes.
Starting trading on your own can become complicated at times, and you would need a mentor to walk you through the investment process. The mentor can be a family member, your teacher or professor, your stockbroker or just a trustworthy person you know, who has the knowledge about the market and can guide you through it.
Do commodity traders make good money? ›
Top commodities traders are among the best paid in the market, irrespective of where they work. Banks pay top commodities traders incredibly well. When Edward Emerson left Goldman Sachs aged 47 last year, it was said to be on the back of $100m of earnings in a three-year period.
What is the safest commodity to trade? ›
The Best 5 Commodities to Trade in India in 2022
- Crude Oil. Crude oil is one of the best commodities to trade because it is naturally-occurring unrefined petroleum and a fossil fuel which comprises organic materials and hydrocarbon deposits. ...
- Aluminium. ...
- Copper. ...
- Natural Gas. ...
- Gold.
Best commodity trading brokers in 2023
| Broker | Brokerage | Request Callback |
|---|
| Zerodha | Flat Fee Rs 20 | Open Account |
| Angel One | Flat Fee Rs 20 | Open Account |
| Upstox | Flat Fee Rs 20 | Open Account |
| Fyers | Flat Fee Rs 20 | Open Account |
4 more rowsIt is common practice for most commodity traders to have a bachelor's degree in business, international business, finance, economics or accounting in order to compete in the finance industry, but no degree is actually required to become a trader.
How much money can you make trading commodities? ›
Commodity Trading Salary. $80,000 is the 25th percentile. Salaries below this are outliers. $114,000 is the 75th percentile.
