Category Archives: Finance Tips

How to Invest in Commodities

Commodities represent another interest type of assets and with the advancement of technology one could invest in them without even owning it. You don’t need to order a hundred barrels of oil and keep them in our home anymore. With online trading, you have instruments that are based on commodities and you are simply buying contracts of value for relatively short period of time.

In this material we will tell you how someone could invest in commodities from the comfort of its home. We will also discuss briefly about what trading strategies could be used and when.

Where can you buy commodities?

At a global scale there are two important places where someone could buy an invest money into commodities. One is the CME Group – operating in Chicago, New York City and London, and offers derivatives like futures and options based on interest rates, equity indexes, foreign exchange, commodities and many others.

The second important place is the CBOE or Chicago Board Options Exchange, where options based on commodities are also available.

Last, but not least, any online broker had included CFDs based on the price of commodities, so anyone is able to trade them with leverage from anywhere in the world.

What strategies are suitable for commodities?

There is no specific type of strategy that had been designed solely for commodities. The traditional ones used for forex or stock trading could be integrated in this market, as well.

However, we have to make a specific remark here. Although you can integrate technical analysis and sentiment analysis + risk management in commodity trading, when it comes to fundamental analysis you will need to pay attention to other indicators.

For example, let’s take oil. Each week, the United States publishes its Oil Inventories. Also, there is the OPEC cartel which had been very active in the last few years due to the drop in prices. It had been changing the daily output and that is another factor which influences the price.

In terms of industrial commodities, one aspect that needs to be highlighted here is that China is the largest consumer in the world, so the economic development in China can influence prices, as well.

There are many other important aspects related to commodity investing and that is why we recommend a thorough study and education before jumping in and invest with real money.

How to Start Trading Using Technical Analysis

There is no doubt that technical analysis is one of the most popular when we talk about online trading. However, even though there are a lot of methods using technical analysis which can be profitable in the run, still, most of the traders fail to understand it properly.

With that being the case, we want to explain a bit how someone could start using technical analysis in such a way that in the long run one could constantly develop skills and achieve the desired results.

Since technical methods are very popular in the forex market, we will stick to it and leave other markets for a future material.

Each technical indicator has its role

There is no indicator better than the others and you will find weak points for each one. What is sure, though, is that each one of them functions in a different way and thus you would need to test them (preferably on a demo account) in order to experience yourself various situations and notice how a particular indicator behaves.

The issue of time frame

Whether you should use a small or big time frame for technical analysis is another dilemma. From a statistical point of view, most of the strategies are performing better on higher time frames, but also, an experienced trader will manage to use them effective on small ones, as well.

Since this is a material for those who are at the beginning, you should pick up 3 different time frames (like 1h, 4h and daily, or 30min, 1h and 4h) and learn how to work with them jointly. This system was described in greater detail in Alexander Elder’s book “Trading for a living”, which is a good lecture if you want to go deeper into the online trading knowledge.

Not too many indicators

An overcrowded chart will stop you from seeing some of the price particularities. Instead of that, try to stick to around two indicators that you like and you have understood the best. Maybe you want to use Bollinger Bands and Stochastic, or maybe you like Fibonacci levels the most. It is up to you to choose the one that you like the most.

Don’t forget that there is no magical technical indicator and the key is to find the things that work the best for you. There’s no point for searching the “Holy Grail” because you will never find it.

 

How Should Ordinary People Invest?

Speculative investments could be profitable on the long run, but for that to happen people must understand that there are some things to be done. When you enter the arena of investing the first thing that you need to realize is that you are entering a competition. We must be straightforward and tell you that those who make money are earning from the ones who lose money.

That how the market functions and there is a small percentage of people who make money on a constant basis and a big percentage of people that do not manage to make it and encounter losses. What you need to ask is:

What are those successful people doing?

And then, copy them.

Simple strategy for ordinary people

Passive investments in the form of index funds represent the best option, according the Warren Buffett, one of the biggest investors of all time.

For those of you that don’t already know, index funds are holding every stock in an index, such as the S&P500, including big companies that have expensive shares which are unaffordable for more of the people. According to Warren Buffett, index funds offer low turnover rates and fees and taxes tend to be also lower.

We agree with Warren Buffett and it is true this is a good strategy, especially for people with low tolerance to risk.

Why is that?

If you have limited capital available, hoping that you will be able to generate huge returns by investing in cheap stocks is a strategy that has very low probability of success.

It is possible to make money work for you, but in order to be able to do that, requires a lot of study, practice and hard work. Keep in mind that you will be competing with others to make money and you need to be better than them.

To summarize, find a way to invest in solid companies, that have a long track record, solid reputation, exceptional products and services and on the long run, you will be able to generate a strong and stable passive income source.

For those of you that have a higher tolerance to risk, you can approach riskier strategies, but be aware that with high profit potential there is high risk involved, as well.

 

Meta description: Investing gest tricky for ordinary people because they do not manage to understand some basic principles. Find out how you could invest in a productive way.

 

 

How to Invest Online

Online trading is the most popular form of investing, and provides you with the fastest and most reliable way to execute your trade.  If you are old school and want to call your broker to place a trade, it will likely cost you more and it will definitely take more time.  Wait time for popular brokers can be 5-15 minutes, where online orders can be executed in seconds.  Here are some of the steps you need to take as you begin online investing.

Opening your account

  • You will need to register, supplying information such as your name, email, and phone number. In some cases you will need to supply your address, proof of address or even your social security or national identification number
  • Many brokers want to know about your trading experience to determine what types of products you are eligible to trade. Many reputable brokers want to avoid providing customers with tools that will allow that to lose all their capital.
  • Once you are registered, you need to fund your account. There are several ways to fund your account including a bank wire, a check, a debit card or even a credit card. This will depend on your domicile. For example, in the U.S. you cannot fund your account with a credit card.

Evaluating Trading Tools

Once you open your trading account, it’s important to evaluate the tools that are available to help you make your trading decision.  This could include evaluating the charting and graphical packages that your broker has available. In addition, many reputable brokers supply clients with economic research including a financial calendar that shows all the different important data points that will be released during the week or the month.

You also want to see if your broker has an education section. Here you might be able to find many different trading strategies and how to use them.  Check to see if your broker offers technical analysis tools and an explanation on how to use these tools to enhance your trading. Your broker might also offer news and analysis. The more information you know the better your trading decision will be.

Order Execution

Each broker will have a different trading platform. Before you risk real capital, make sure you understand how trades are executed.  Many brokers have demo accounts that allow you to execute traders without risking real capital. If your broker has this capability, give it a try so you become familiar with executing a trade. There is no harm with making a mistake with demonstration money.

If you plan on using your broker’s trading app platform, make sure you also take this for a test drive before you execute a trade. If you are on the go, you want to make sure that you can see your balances and position on all platforms offered by your broker. For example, the trades you make on your PC should show up on your mobile device.

Summary

Trading online is the most efficient and cost effective way to execute a transaction. After you register you should evaluate the trading platform before you deposit capital.  Test drive all the platforms you plan on using to make sure you understand all of the nuances of your brokers trading platform.