Commodity trading can be a lonely endeavor. Hours of intense preparation and strategy implementation can be both physically and mentally taxing. Introducing friends and family to the markets is a great way to gain trading buddies to share information and hard-earned wisdom with—plus, you get to help those close to you achieve their financial goals.
Of course, not everyone is interested in finance. Many people have full-time jobs, raise children, or simply do not understand how active trading works. The key to attracting these folks to the marketplace is to remove the mystery. By taking some time out to explain the basics, benefits, and potential upsides, you will have a great shot at bringing your friends and family into the commodity markets.
Explain the Basics
Without a doubt, one of the biggest concerns people have about commodity trading is that they don’t understand how it works. In an attempt to attract readers, mainstream media outlets frequently promote stories that involve market crashes, Ponzi schemes, and insider trading. It’s no wonder that the futures markets often carry with them a negative connotation.
Perhaps the best way to remove the stigma is to explain the basics. If covered thoroughly, two key points can reinforce confidence in the commodity market’s integrity:
- Commodity futures are exchange-traded: Futures contracts are exchange-traded financial instruments. Transactions are guaranteed and cleared through a centralized intermediary, thus eliminating the risk of counterparty default. When compared to over-the-counter (OTC) products such as cryptocurrencies or forex pairs, futures offer participants an enhanced degree of security.
- Commodity futures are regulated: In the U.S., brokers, clearing houses, and exchanges are subject to regulation. All are monitored by the Financial Industry Regulatory Authority (FINRA) and must be licensed by the Commodity Futures Trading Commission (CFTC).
If a friend or family member is hesitant to embrace commodity trading, it is likely because of false preconceived notions. The fact is, commodity futures are a safe and efficient way of trading earth-borne materials. When compared to sectoral stocks and ETFs, they offer a collection of unique advantages.
Benefits of Commodity Futures
According to a spring 2019 Gallup poll, 55 percent of Americans own equities products. If your friend or family member has an IRA or 401(k), chances are they fall into this category. Should this be the case, a brief explanation of how commodity futures can benefit a structured portfolio is one way to replace hesitation with incentive.
Here are three key benefits of commodity trading:
- Flexibility: A trader can profit from taking either a long or short position in the market. This flexibility opens the door to a wide array of strategic options, specifically those designed for hedging and speculation.
- Leverage: The capital efficiency offered by futures has few equals. Low margin requirements (3-12 percent) provide traders with robust purchasing power and the ability to maximize the potential of their risk capital.
- Diversification: When compared to ETFs, mutual funds, or specific stocks, commodity futures are an ideal way of trading the world’s raw materials. Contracts reflect the value of the underlying asset directly, free of tracking errors and variance.
These are just a few of the benefits provided by commodity futures. However, these three are enticing to anyone interested in maximizing capital efficiency and directly engaging the commodity markets.
The Upsides of Commodity Trading Are Attractive
For thousands of individuals, the personal freedom afforded to active traders is the single largest upside. You aren’t subject to the conventional 9-to-5 work week or a standard salary. The constraints of the job are left up to you.
If a friend or family member is a self-starter and interested in living life on their own terms, commodity trading may be an ideal profession. To learn more about how to get started, contact one of our StoneX brokers today.
