Stock Market and Commodities Futures and Options – What You Need to Know Before You Trade

How to trade commodities and stock market is a question many novice traders ask. What you should first understand is that trading commodities is a different game from trading stocks, although both are worth learning if you want to increase investment profits. One of the main things you should remember when it comes to trading is that all investment instruments are unique in terms of the way they generate profit.

A key advantage of commodities trading is that unlike stock trading or investments in ETFS and mutual funds, commodities allow you to make higher percentage gains with a trading capital that is usually only about 10% of a contract’s total value. For instance, you can take hold of a futures contract within the S&P 500-Index with a small margin deposit of a little over $20,000, whereas it would take you several hundred thousand to buy the actual stocks within the same index. Moreover, a 20% rise in it will return a profit of more than 100% as opposed to buying. This means putting up smaller investments for a much larger profit.

To some traders on the other hand, trading stocks is a lot easier than trading commodities in that they generally have more trading activity, which ultimately lowers cost to trade. It is also important to note that stocks in general tend to outperform inflation over time because you are essentially investing your money in enterprises that are trying to improve and be more productive as opposed to commodities that only rise at the pace of inflation.

Regardless where you stand in the stock trading versus commodities trading debate, learning how to trade commodities and stock market is a valuable skill to master as both trading environments offer great profitability, especially when you know how to play the game right.