Commodity trading is specialized in the field of global finance that in recent years has been gaining more attention among individuals who are looking for trading tools alternative from the usual stocks and bonds.
The types of goods traded
Goods that are frequently traded in the financial markets usually are driving the global economy in the world in which we live.
These include important and precious metals such as gold, silver, copper, platinum and energy commodities such as oil and natural gas. All metals classes safety Steel, where it is used or its use.
Commodities such as wheat, sugar, corn, cocoa, are known as soft commodities. Unlike hard commodities, they are products that are grown rather than extracted or mined.
What kind of powerexamplesMetalsGold, Silver, Copper, Platinum, Aluminum, Lead, Nickel, ZincEnergiesOil (Brent crude), heating oil, natural GasSoftCocoa, coffee, corn, cotton, soyabeans, sugar and wheat
Source: IG power trading
Regardless of whether they are hard or soft goods the main basis behind why these goods traded by the traders is because they enjoyed large global demand, there is a need of the things that people consume or use.
How commodity trading started?
All the power you need to time the production process before it is delivered from producers to buyers. This leads to two main forms of paid producers and buyers could continue on.
# 1 the spot price
The spot price is the price you pay for buying the commodity “on the spot”. For example, if a corporation wants immediate delivery of barrels of crude oil a day, they will pay the spot price which is the current market price of the commodity today.
# 2 futures
If a company requires peace in the future, but wants to have some future price certainty today, you can enter into a future contract with the organization. This is basically an agreement between the parties in the future delivery of goods at an agreed price.
Ways to trade in goods
Commodity trading in the financial markets work in a similar way to the two ways mentioned above. Traders can trade and based on the current spot price (such as Gold, Spot Silver), or lose money depending on whether the price moves with or against their position.
Spot positions expiry date, this means you can hold your position for as long as you want. This can be done through CFDs.
Traders can also choose the next decade. Unlike the spot position of the future contract expires on a specified future date. The value of the next decade will be shared by the as goods the price of the future contract, compared with the spot price at that time.
Futures contracts are highly standardized and traded through a dedicated exchange that ensures all contracts marked-to-market daily.
You can see more details on how you can trade in commodities either through the CFD or in the future in this guide from the IG.
Risk in the goods
Like all types of financial instruments, there are risks involved when it comes to commodity trading. Here are the 4 key risks that potential traders should be familiar with.
# 1 supply and demand
Because all goods are traded and used commodity prices can swing widely, depending on whether demand and excess supply, or vice versa.
For example, if a country as big as China to expand the development of infrastructure over the next few years, the prices of metal trading is likely to increase.
# 2 The Weather
Soft commodities such as wheat, cocoa and coffee prices could increase if bad weather limits the supply for a certain time period, since consumer demand for these goods is likely to remain constant.
# 3 political development
Political developments can cause price fluctuations.
For example, if the large-producing states in the Middle East in political turmoil, it may lead to a slowdown in oil supply, leading to rising oil prices is increasing.
# 4 exchange rate
Like it or not, most commodities priced in United States dollar (USD). Singaporeans what that means is that the performance of the Singapore dollar (SGD) against the US dollar is also of interest to us, since any potential gains in transactions could be compensated if the exchange rate moves against the United States.
One of the main reasons why financial traders are eager to trade commodities due to price volatility.
Because of the various risks the above prices can fluctuate dramatically in the short term than profits, on the assumption that the trader takes the correct posture. By employing leverage, the profit margin can be increased.