The lure of easy money in the commodities markets often entices some people to risk money they can’t afford to lose. It is a good plan to diversify an investment portfolio with a portion of investment funds going into a commodity ETF, but it is a bad plan to use the sum of your savings to open a commodity trading account.
With that said, I’m sure many adventurous individuals will try to roll the dice anyway. Hopefully, I can still persuade those people to not risk their hard-earned savings where the odds are severely stacked against them when they trade with scared money.
The first reason you don’t open a commodity account with the sum of all your savings is that most people will blow out their entire account when they first start trading commodities. This usually only takes about 3-6 months to happen. Most commodity traders have experienced this at least once while learning how to trade. If you blow out you account, which is your entire savings, you are done trading!
The second reason that you should only use risk capital to open a commodity account is that you will be trading with scared money if you can’t afford to lose it. Trading commodities successfully takes a clear mind without distractions. Worrying about making making money every week to pay your bills will likely doom your trading account.
I can guarantee that you will make bad trading decisions if you are trading with scared money. Stress causes us to make irrational decisions. You will not see things clearly until after the damage has been done. A typically trait under these circumstances is for traders to take quick profits and let their losses run. They don’t want to take a loss, since they can’t afford to lose the money and a couple big losses will seal the fate of your account – right down the drain.
If that doesn’t make you think twice about using the bulk of your savings account to trade commodities, the new account forms might stop you cold. All commodity brokers will screen new clients to make sure they meet the financial criteria to trade commodities. They usually want an estimate of assets, net worth and liquid assets.
Most commodity brokers will not open an account if they feel you are using money you can’t afford to lose. They don’t want the liability and some are even looking out for your best interest – believe it or not.
