Author Archives: Asingh

Tips when Trading Commodity ETFs

ETFs have become highly sought after investments due to their prices. Real commodities are expensive and need inventory, while ETFs are cheaper and do not need physical storage.

Buying ETFs is easy as they can be purchased through a service broker or an online provider. Despite this, however, there are specific considerations that traders must keep in mind when trading commodity ETFs.

So, if you trade commodities, here are some expert tips for you to consider moving forward.

The volume that appears on the screen does not automatically equate to its liquidity

Unlike stocks and LICs, commodities are open-ended. This means that the units for trade can be redeemed or created by a fund manager. When more volume appears for a particular commodity, it doesn’t necessarily mean that the demand for it is high. That’s because an ETF is able to issue new units constantly as long as the assets are increasing.

Keep in mind limit orders

Use limit orders instead of market orders. Limit orders are much better in the sense that you are settled at your chosen price. You can check the status of your ETFs using INAV or “Indicative Net Asset Value”. Since market prices fluctuate throughout the day, INAV tends to change quickly as well. Any changes that you can see on the INAV also reflect on the bid price.

Volatile markets have big spreads. Therefore, your assets will most likely be placed at a wide spread. There are instances where big orders will settle at a different price from what is indicated on the INAV. So it is advisable to keep using limit orders in order to get your ideal price.

Check INAV before placing an order

As previously mentioned, you can check the status of your ETFs using the INAV. Those who issue ETFs give traders an indication of real-time net asset values. Because this calculation changes from time to time, the number calculated is referred to as the INAV. Remember to always check the INAV so you can see the estimated value of a commodity ETF during any given trading day.

Wait until the dust has settled

ETF prices are extremely volatile when the markets have just opened or when they are about to close. Therefore you should begin trading when the dust has settled. Wait 10 minutes after the markets have opened, and stop 10 minutes before they close.

Trading commodity ETFs are just like trading any other stock or forex. If you want to sharpen your skills, you can always use a dummy account. There are many platforms that provide dummy accounts that will give you an introduction into the world of trading online.  MetaTrader 4 on FXCM allows traders to access markets from around the world requiring very little capital to start. Like many other innovative trading platforms, MT4 is designed to give users the ability to gain insights before they plunge head first into serious trading. It’s resources like this that will help you transition seamlessly into the financial markets through making trades with small amounts of money, slowing working your way up the more confident you become.

Remember, before trading ETFs, check the fundamental factors that affect the market. Fear and inflation are variables that affect the prices of commodities.

 

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