Learn about the benefits of trading raw materials on the stock market

Trading raw materials in the stock market can be a great way to diversify your investment portfolio and obtain protection against inflation. Below are some of the main benefits of trading commodities:

• Diversification: Commodities typically have a low correlation with traditional financial assets, such as stocks and bonds. This means that when the stock market falls, the price of commodities can rise, which can help offset losses in other parts of your portfolio.
• Inflation protection: Commodity prices tend to rise with inflation, making them a good hedge against losing the purchasing power of your money. This is because commodities are real assets, meaning their value is backed by physical goods.
• Speculation opportunities: Commodity prices can be very volatile, offering opportunities for speculative profits. However, it is important to note that speculation can also lead to significant losses.
• Access to a wide range of markets: The stock market offers access to a wide range of commodities, such as oil, natural gas, metals, agricultural products and livestock. This allows you to diversify your investments in different sectors of the economy.
• Possibility of using leverage: Some brokers offer leverage for commodities trading, allowing you to control a larger position with a smaller initial outlay. However, it is important to use leverage with caution, as it can amplify both your profits and losses.
• Additional benefits: In addition to the benefits mentioned above, trading commodities can also offer other benefits, such as the possibility of earning passive income through dividends and protection against geopolitics.

How to trade raw materials

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Trading commodities can be a risky business. It is important to understand the risks involved before investing and never invest more money than you can afford to lose. Let’s see the step by step below:

1. Choose a broker:

The first step to trading commodities on the stock market is to choose a regulated broker that offers access to the commodities market. It is of utmost importance to compare different brokers and choose one that has a good reputation, low commissions and an easy-to-use trading platform.

Examples of brokers to operate with raw materials:

Global brokers:

• IG Markets: It offers a wide range of products for trading, including commodities, stocks, Forex and indices. It is regulated by the FCA and ASIC.
• XM: It offers a wide range of products for trading, including commodities, stocks, Forex and indices. It is regulated by CySEC.
• Plus500: It offers a wide range of products for trading, including commodities, stocks, Forex and indices. It is regulated by the FCA, CySEC, ASIC and FSCA.
• eToro: It offers a wide range of products for trading, including commodities, stocks, Forex and indices. It is regulated by the FCA, CySEC, ASIC and FSA.
• Pepperstone: It offers a wide range of products for trading, including commodities, stocks, Forex and indices. It is regulated by ASIC, FCA, CySEC and DFSA.

2. Open a trading account:

Once you have chosen a broker, you will need to open a trading account. This usually involves filling out an online form and verifying your identity.

3. Fund your account:

To start trading, you will need to fund your trading account. The minimum deposit amount will vary depending on the broker.

4. Choose the commodity you want to operate in:

There are many different commodities to trade, such as oil, natural gas, metals, agricultural products, and livestock. It is important to choose a commodity that you understand and feel comfortable trading with.

5. Analyze the market:

Before carrying out any operation, it is important to analyze the market and understand the factors that can affect the price of the raw material you have chosen. This includes factors such as supply and demand, economic conditions, geopolitical events, and weather.

6. Choose a trading strategy:

There are different trading strategies that you can use to trade commodities. Some common strategies include trend trading, range trading, and news trading. It is important to choose a strategy that fits your trading style and risk tolerance.

7. Place an order:

Once you have analyzed the market and chosen a trading strategy, you can place an order to buy or sell the commodity you have chosen. There are different types of orders, such as market orders, limit orders and stop-loss orders.

8. Monitor your operations:

It is important to monitor your operations and make necessary adjustments as necessary. This includes adjusting your stop-loss levels and taking profits when you make a profit.

9. Manage your risk:

Risk management is an important aspect of commodities trading. It is important to set loss limits and stick to them. It is also important to use stop-loss orders to limit your losses in case the market moves against you.

Important considerations before trading commodities

Before investing in commodities, it is important to take into account the following risks:

• Volatility: Commodity prices can be very volatile, meaning they can go up and down quickly. This can lead to big profits, but it can also lead to significant losses.
• Liquidity: Some commodities may be less liquid than others, meaning they may be more difficult to buy and sell quickly. This can make it difficult to exit a position in case the price of the commodity suddenly drops.
• Costs: There are costs associated with trading commodities, such as commissions, exchange fees, and storage costs. These costs can reduce your profits or even lead to losses.
• Geopolitical risk: The price of raw materials can be affected by geopolitical events, such as wars, conflicts and natural disasters. This can create uncertainty and volatility in the market.
• Regulations: The raw materials market is regulated by different government agencies. It is important to understand the applicable regulations before investing in commodities.

Trading commodities on the stock market can be an effective way to diversify your portfolio and gain protection against inflation. However, it is important to understand the risks involved before investing. If you are considering investing in commodities, it is important that you consult with a qualified financial advisor.