Commodities are a normal part of our lives, whether related to energy, food, metals, etc. Any individual who owns a vehicle is highly likely to be affected by rising oil prices. A shortage of soybean can have drought-like effects on your family's meals. Just like that, it is an important and useful way of diversifying portfolios beyond traditional security, regardless of the periods. It can be done for long term or to stock up cash at times of unexpected, but explosive stock market bearish - for its usual for commodities to move against the stocks. It was common for average investors to not allocate commodities due to the reason that it may require longer periods, large amounts of money and enough expertise. Though nowadays, the availability of routes to the markets is more than they were in the old days.
This factor has increased participation from even parties that are not traders. A huge swarm of commodity exchanges is present all around the world, though most of them are either out of business or have associated themselves with something else – a merger. A large number of them carry different commodities, whereas some specialize in a particular group/niche. Take, for example, the London Metal Exchange, which has its concerns only with the metal commodities. A great number of popular exchanges in the United States are under the CME Group. Running most of the US’s commodities, this group came into being a merger of the Chicago Mercantile Exchange and the Chicago Board of Trade in the year 2006.
Commodity trading requires agreements in the exchanges to ensure that the trade is executed confidently. You would not want to buy a hundred units of something just to find out that they are broke/sick/out of order or low in quality.
Kinds of Commodity CFD’s
The world is rich – literally – in commodity exchanges. There are so many that anyone can trade and invest almost eighteen commodities as CFDs. The commodity markets are split into two, soft and hard. However, this is not the only division; the commodity markets are divided into further popular categories.
Agricultural Commodity Trading
The name itself makes it all obvious. Coffee, sugar, cocoa, tea, cotton, soy, corn, rice, wheat, etc. fall under this category. Although smaller than other markets, agricultural product coffee makes the second-largest commodity – coming second to oil.
What Impacts the Price of Agricultural Commodities?
The greatest factor that affects the agriculture commodity’s prices is supply and demand. Besides, several other factors also impact prices.
It is a fact that commodities, at least most of them, are meant for animal or human consumption, not one but most of the regulatory bodies influence the production and storage of commodities. Aside from that, additional government policies also play their part in the commodity industry. For instance, if England decides to impose a tax on sugar products such as beverages, the use of this product in the beverage industry can be impacted and so could the prices of sugar in other countries.
Energy Commodity Trading
Energy is one of the finest commodities for international trading, mainly because it is an everyday requirement for people across the globe. The commodity can be traded in several forms such as crude oil, gasoline, Brent oil, solar panels, and many more. No matter what form of energy commodity you are trading, each of these is a fundamental source of power in various industries and has the capacity to impact economically and quiver the forex market.
For example, a little inflation in energy prices has the potential to affect several industries such as aviation, textile manufacturing, automobile, and others. Today, it is a known fact that economies rely tremendously on energy prices, specifically oil. Therefore, if you possess a good insight into the global energy sector and have the advice of forex gurus by your side, then nothing can be more valuable than energy commodity trading.
Oil as Energy Commodity Trading
If you are trading in an energy commodity, then you should not ignore the significance of the oil market. And, while dealing in oil, you must possess the elementary affairs of OPEC that has immense impact potential over the entire oil trade arena. OPEC is a union of some of the biggest and most influential oil exporters of the world, and certainly, no norm is expected to change in the year 2020.
Every joint meeting session at OPEC is critical in determining the future of the oil market and hence should be monitored with high anticipation by the investors.
Metals commodity trading
Just as the term depicts, metal commodity trading involves the trading of precious metals such as gold, palladium, platinum, silver, and copper. Like energy, metals are also an important component in almost every major industry and are used for diverse purposes. For example; gold and silver have high ornamental value, while copper and platinum are used in both construction and energy sectors.
Previously, you needed to be rich to get involved in metal commodity trading. But, all credit to the derivative methods of trading, CFD, it has now become possible kickoff in this field at a low potential investment, which you can later maximize using market leverage.
However, similar to another major commodity trading, the same supply as well demand phenomenon applies here as well.
Gold Dominance in Metal Commodity Trading
God as a metal commodity is often deemed as a safe-haven for investors.
Even during economic uncertainty, one might notice a decent influx of traders preferring to sustain over it via shares and CPOs.
Using Commodity Pools and Managed Futures
Investors who are reluctant to consider the risk factors or are hesitant in making dicey decisions may not shy away from commodity trading because now they got a reliable solution to all their issues. With the commodity pool operator, they have the leverage to invest confidently and explore a range of investment options. A CPO is generally referred to as a particular forex agent or a limited partnership that accumulates money from the investors and invest in potential areas and contracts.
They provide a list of risk disclosures to their clients and distribute them to the account statements and financial reports on a periodic basis. CPOs maintain a strict order of all the transactions and pools operational under them.
Another advantage of CPOs is that they hire expert trading advisors to assist them in making key trading decisions with absolute certainty.
Make sure your CPO is registered with governmental authorities and have a clean trading background in all departments.
Commodity trading is dependent on many aspects, and it is highly important for traders to keep a keen eye over the series of regional and economic events that unfold across the calendar. This will allow them to maintain a good insight into the market and cultivate a prudent forecast while considering a calculated risk.