How to trade commodities
Trading in commodities includes the purchase and sale of a wide range of instruments, including black gold and blue fuel, alloys such as noble metal and silver, as well as delicate commodities such as beverage, expresso, grain, and sugar.
Trading in raw materials is as old as economic markets and probably even more so than them. The first example of a stock exchange established to trade in products dates back to 1530 in Amsterdam. Nowadays there are a large number of bazaars in which it is possible to trade in general with some clicks of the mouse or by pressing a key in a mobile organization, but certain products remain as widespread as they were in the first place. Read more about the establishment of the product here.
Commodity trading online
- Open an account. Open a live account to start trading right now, or practice on our demo account first.
- Choose your market. Select an asset on the commodity market that you want to spread bets or trade CFDs on.
- Decide between buying or selling. Buy (open long positions) if you think prices will rise, or sell (open short positions) if you think prices will fall.
- Specify the size of the transaction. Determine the amount per movement point (spread betting) or the number of units (CFDs) that you want to trade. When trading CFDs, the cost of one unit may vary depending on the instrument you have chosen for trading.
- Manage your risk. Choose from several stop-loss orders, including Guaranteed Stop Loss Orders (GSLO). Guaranteed stop-loss orders work the same as regular stop-loss orders, except that for an additional fee they guarantee the closing of the transaction at the price you specify, regardless of market volatility or gaps. If GSLO fails, we refund the premium paid.
- Control your position. After the transaction is completed, monitor open positions (including any stop orders or profit-taking orders) to monitor profits or losses in real-time. Remember that losses may exceed the size of your deposit.
- Close the position. If your trade does not close automatically as a result of triggering a stop order or a take profit order, close the trade when you are ready.
Commodity derivatives trading
Several commodities can be traded, including agricultural products such as maize, plants, and grains. However, energy bazaars, such as oil and gas trading, as well as metal bazaars (e.g. gold and silver) are the most famous commodity traders.
In our Next Generation trading desk, I recommend values in more than a hundred spot and forward commodity instruments, including wet black gold (Brent and West Texas), precious metal, silver, metal, natural blue fuel, and expresso (I recommend selling expresso as well as Arabica and Robusta). Both spot values and values according to forward contracts are included. When obtaining authorization to purchase products according to spot values or with the use of a forward contract, traders have the opportunity to use contango and backwardation characteristics to determine whether the upcoming price can guarantee significant profitability.
Commodity markets are traded in the same way as other types of economic markets, but certain factors need to be understood to avoid any shocks or surprises in the presence of commodities. In this post, I will focus on two of the more rapidly traded commodities: oil and gold. You can do spread betting or CFD trading in the faster trading commodities in the trade.
Although there are a large number of different types and grades of crude oil, the most common ones to trade are Brent Crude and North American West Texas Intermediate (WTI). Since there are several different consistencies of oil, costs fluctuate due to this, one or the other with them you are trading. Check out our absolute guide to oil trading here.
Factors influencing oil price
In the presence of commodity trading, it is important to be aware of incidents that have a chance to affect the value of black gold. For example, the cost is not only dependent on the amount of oil pumped from the subsoil. Since black gold is considered a massive fuel base, in such a case, if the global macroeconomy is formed and factories are functioning at full capacity, it is reasonable that the global use of such a product as well as black gold will increase.
If the macro economy is delayed and the need is lowered, the value of black gold and other raw material products, in addition, as well as the principle, is necessary because of it. In the basis of 2016 black gold traded further than thirty dollars per barrel.
Since the value of black gold is also affected by such worldwide actions as strategy and socio-economic situation, including the Middle East decline, traders should watch out for new developments in order not to be caught by a sudden change in the value of black gold.
Other conditions affecting the price of black gold are the decisions of the Organization of Petroleum Exporting Countries (OPEC) and other large oil-producing countries, such as Iran, regarding the number of oil produced and delivered to the exchange.
The ability to try to predict how well or poorly the global macro economy will improve in the coming months is an undeniable plus in trading a commodity like black gold. However, there are a large number of new developments that have the potential to generate value swings both on a day-to-day basis and on an even more short-term scale. For example, if the United States of America releases information indicating that the macro economy of the country is improving rather than expected, this can cause a sudden increase in the price of black gold, as commodity traders will bet that the demand for black gold will increase and therefore the price of a barrel will rise.
Or it can happen in such a way that the oil-producing country will counteract the international pressure to balance the cost of black gold by increasing production. This could cause a subsequent drop in the price of black gold, as traders are afraid that more material will be produced than necessary. This is a stock exchange that can be exposed to a large number of global events, for this reason, you should watch out for the release of key financial news.
Another constantly common product is noble metal, which has long been considered a treasure trove of property and has had a special seductiveness for many of us, which is certainly indicated by the Californian paradise fever of the 1840s. Nowadays, the period is traded like every other economic mechanism and is still considered a significant product for numerous traders in the whole society.
Usually, in the moment of decline and volatility of trading, the noble metal is accepted as a “haven” – a role in which traders have all chances to keep their funds away from other dangerous assets. Even though on a theoretical level yellowish alloy can be traded in numerous currencies, the standard bazaar currency quote is the value of gold in bucks, usually in “bucks per troy ounce”. This relationship along with the United States dollar has a huge role and is considered another condition that will have an impact on the value of gold. If the dollar becomes more tempting for traders and starts to increase, then the value of the precious metal, as well as the principle, falls. In recent years, certain societies have begun to consider the United States dollar as a haven for their funds, which has reduced the appeal of gold.
This is still the only approach that should be taken into account in the presence of trading amber: the impact of each movement of the direction of the dollar on the value of gold. For example, if the main central bank of the United States of America, the Federal Reserve Concept (FOMC), acquires a resolution regarding the reduction of the profit pond, this, as well as the principle, will lead to a softening of the United States dollar and an increase in the value of the precious metal. As in the case of oil, since the precious metal is considered to be such a mass product, it is necessary to observe key financial information, such as interest rates and unemployment data, which are published regularly.
Energy bazaars also utilize the fame of commodity traders. The emergence of recoverable energy keys has triggered an auxiliary interest in such commodities as state-owned blue fuel, heating oil, and fuel. Just like in the case of oil trading, global actions, and strategies have all the chances to affect the energy markets, for this reason, it is rational to observe the energy trading presence due to the novelties and financial publications.
It is impossible to invest directly in certain energy carriers as well as in a product, for example, in the element that is used in nuclear power plants. Instead, traders need to invest in the element through mineral promotions and ETFs.
Commodity spread trading strategy
The policy of commodity spreads implies the activity of reverse positions in the same or similar bazaars. This is a less dangerous policy than the use of futures contracts, as spreads experience the least trading fluctuations than futures contracts, which expire in several months or months. The trader can use the sale of commodity spreads in the belief that in the long-term possibility, the difference among spreads will be the most positive, as the long spread area will increase in value in comparison with the short one bypassing.
Just like other product trading strategies, trading activity in commodity spreads can be dependent on seasonality and other external conditions. For this reason, traders have every chance to use the advantages of a bullish spread to trade at the top of the season in a particular product. This is exactly how a trader can use a bullish spread if the cost drops in the smallest peak of the year.
How do I start commodity trading?
For this purpose, to start trading in commodity trading, you should first decide whether you want to perform spread betting or CFD trading. These are the main ways of trading commodities, together with which you need to study. Then it is possible to reveal the commercial result by making the following impacts.
What is a product?
A commodity is a raw material or agricultural product that is actively traded, bought, or sold. Commonly traded commodities include gold, oil, natural gas, and sugar. The quality of the goods may differ slightly, but it is the same for all manufacturers since any product traded on the stock exchange must meet a certain minimum. Check out the range of products we offer.
What do commodity traders do?
Commodity traders buy and sell a wide range of material instruments, such as energy resources such as oil and gas, precious metals such as gold and silver, and soft commodities such as wheat, corn, and sugar. To predict the market movement, traders conduct fundamental and technical analyses. They tend to buy when the price is low, which is usually determined by oversupply and falling demand. They sell when, in their opinion, the supply outweighs the demand, which can lead to a profit. Why not practice trading on commodity price movements using a demo account?
What are the margin rates for commodities?
Our commodity margin rates start at 5% for gold and 10% for other commodities. This means that if you invest £5,000 in gold trading, you will control the full trading value of £100,000, and £50,000 for all other commodities. However, it should be borne in mind that your profits and losses increase as they relate to the full value of the transaction. For more information, see our guide on using leverage in trading.
How to start trading goods?
To get started, open a demo or live account to gain access to our commodity trading platform. On our platform, you can perform all the necessary actions to start trading on the movement of commodity prices, such as choosing from a variety of instruments, buying or selling through order tickets, as well as applying risk management methods.