An overview about trading commodities

Commodities CFDs (Contracts for Difference) are popular financial instruments that allow traders to speculate on the price movements of various raw materials without owning the physical assets. Commonly traded commodities include gold, oil, natural gas, and agricultural products like wheat and soybeans. CFDs enable traders to leverage their positions, meaning they can control a larger position with a smaller amount of capital.

What are commodities?

Commodities refer to raw materials that are extensively used in industry or agriculture, and are purchased and sold on a wholesale rather than retail basis. They are typically standardized and interchangeable with other goods of the same type. Commodities are generally classified into three categories:

1. Energy – including crude oil, natural gas, etc.
2. Basic raw materials – including gold, silver, copper, aluminum, etc.
3. Agricultural products – including sugar, corn, soybeans, etc.

These goods are fundamental to the global economy and are often traded on commodity exchanges. Prices for commodities are influenced by supply and demand dynamics, geopolitical events, and market speculation. They play a crucial role in industries and can serve as investment vehicles for diversification.

What will affect the prices of commodities?

Supply and demand are crucial in determining commodity prices. For instance, if oil supply is projected to be robust while market demand remains steady, oil prices will likely decrease. Conversely, geopolitical tensions, such as those in the Middle East, can disrupt oil supply, leading to shortages and higher prices as demand is anticipated to exceed supply in the short term.

Inflation also plays a significant role. As inflation rises, the value of currency declines, meaning investors require more money to purchase the same amount of goods. This depreciation impacts commodity prices, often driving them higher as the cost of goods increases to reflect the reduced purchasing power of currency.

What commodities should I choose to trade?

If you're looking to trade commodities, gold and crude oil are likely your top choices to begin with. Gold is a key hedging tool in the market, especially during times of political instability or economic downturns, as investors often turn to gold to protect against currency depreciation.
Gold prices can experience significant fluctuations during international crises, influenced not just by the countries involved but also by broader global factors. This volatility presents investors with diverse potential opportunities.

Similarly, crude oil's price movements are often driven by shifts in global supply and demand, which can be tracked through international news. Like gold, oil prices are influenced by global events, potentially offering ample opportunities for investors.

What’s the advantages of trading commodities?

Trading commodities can protect investors from inflation, as inflation hurts ordinary investment products. In times of inflation, returns on ordinary investment products such as bonds are relatively low, while the performance of commodities is generally in direct proportion to inflation. This is because when the prices of goods and services rise, the value of the commodities needed to produce these goods and services will also rise. So if your portfolio includes certain commodities, you may be able to reduce losses owing to inflation.

Commodity CFD trading offers a flexible way to gain exposure to commodity markets without owning the underlying assets. Traders can benefit from price movements in commodities like gold, oil, and agricultural products, utilizing leverage to amplify potential gains. Click here to open an account, and start your commodity CFD trading today!

When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.

Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.