Your Key to Success – Commodities Trading

Online commodity trading provides an opportunity for portfolio diversification from the conventional securities. Successful commodity traders invest in commodities as a way of shielding themselves from unusual stock market volatility. Commodity trading can also be done long-term, for physical commodities such as oil and gold to generate wealth.

What is commodity trading?

Commodity trading is an investment strategy that involves trading of physical goods as opposed to stocks. The most traded commodities in the world include metals such as gold and silver and minerals such as oil. Agricultural commodities such as soybeans are also widely traded commodities. With the invention of the internet, traders can now open and operate an online commodity trading account.

Commodities can be bought in an exchange market such as the New York Mercantile Exchange for an equivalent value of the commodity in monetary terms. Then, the trader gains or loses depending on whether the commodity increases in value or loses it. Regulatedbrokers.com is a website that offers excellent forex guides and forex broker reviews. Forex and commodity trading are related. Knowing the best broker to trade with is the starting point of a successful commodity trading.

What commodities are traded?

The commonly traded commodities in the financial markets include:

Agricultural

  • Coffee: the commodity has a huge global demand. It has a huge supply as well and generates an excess of 1.6% of GDP value in the US.
  • Corn: it is useful in livestock and human feeding and has an industrial application in the manufacturing of ethanol fuel. It is also added to soft drinks as a sweetener. The demand for food and energy is high and this means the commodity will remain significant in the commodity market.
  • Soybeans: The oil obtained from soybeans is used in the preparation of bread and cakes. Crushed soybeans provide livestock food. Soybean oil is also a product used in biofuels. As demand for fuel and food products increases, soybeans demand will also increase.
  • Wheat: wheat has been an important food crop globally for a long time. The prices of wheat are compared to its substitutes including corn, oats or barley. Variation in the relative prices of wheat and its substitutes determines the variation in demand between them and soybeans.

Energy

  • Crude oil: It has the most weighed impact on the entire world economy. Oil is a commodity extensively used in the transportation industry. It is also used in industrial production of synthetic textiles, computers, cosmetics e.t.c. The demand for this commodity is therefore very high.
  • Natural gas: has industrial and commercial uses. It is used in electricity generation and is a clean source of energy.US and Russia are the two main producers of this commodity.
  • Gasoline: It is the product of refined crude oil. It is mainly used in fueling cars and has an inelastic demand. Crack spreads are traded by commodity traders for the difference in the pricing of refined oil products and crude oil.

Metals

  • Gold: it has a high demand due to speculation around it. It is conceived as an alternative to paper currency. It has negative correlation movements to dollar currency. It is also useful in making jewelry or electronics.
  • Silver: It is weaker than gold but attracts massive speculation from traders. It is compared in form of ratios to gold to determine its relative strength. Has an industrial application in making jewelry e.t.c.
  • Copper: The metal has a significant indication on the overall global GDP strength. It is widely used in infrastructure building. Its use signifies a bullish speculation on global GDP.

What are the main trends of commodities trading?

Risk mitigation: Risk analysis has become essential for commodity traders to enable them to make wise trading decisions. Risk analysis has become a critical tool for the effective control of commodity market default risk.

Liquidity: With the invention of the internet and online trading, commodity trading has become widespread in the exchange markets. More traders now find it easier to trade which generates a higher liquidity for the global commodity exchange markets.

Complex Market Data: The market data for commodity prices has become diverse and voluminous. Therefore, timely data interpretation and management has become critical for successful commodity trading.

Consolidation: The exchange companies for the futures and other commodity products are becoming global through mergers or acquisitions. For instance, Tokyo Commodity Exchange established collaboration with Dubai Mercantile Exchange for the facilitation of energy products exchange.

Deregulation: The commodity market industry is increasingly becoming deregulated to allow for a global trade. This process has enhanced growth of commodity trade and creates good future prospects for growth.

What is the influence on this market?

The influence in the commodity markets is driven by the forces of demand and supply. Demand defines how much value of commodity traders are willing to buy at a given price. Supply is the availability of the commodity based on how much of the commodity a market offers. A shortage in supply drives demand up and vice versa.

World commodity traders are finding it easier dealing in commodities due to the invention of digital commodity trading platforms. With such a trend, commodity trading remains a viable business as long as the demand and supply factors continue to fall in place.