Oil and gas are the two most popular commodities. They are traded in heavy volumes around the clock offering multiple opportunities to online traders. Whether it is US Crude Oil (WTI), Brent Oil (Brent) or Natural Gas (NATGAS), energy commodities are quoted in USD.
Commodity trading is the action of buying and selling of a rage of instruments such as oil, gas, precious metals like gold, silver, copper and ‘soft’ commodities like sugar, wheat and even coffee. Commodity trading dates back even further than the financial market, in fact the first recorded commodity trade was in Amsterdam in 1530.
These days there are a host of trading opportunities within currencies, investment plans, properties, but some of the old fashioned commodities are still very popular today.
How to trade commodities
Once you have chosen your commodity market which can be such like Crude Oil, Natural Gas or Gold, that you want to spread bet or trade via CFD.
You just need to then decide to buy or sell or go long if you think the prices will go up, or sell short if you think the prices will fall.
The value of a CFD may vary depending on the commodity you have chosen to trade with.
You can also manage your risk with a (GSLO) guaranteed stop-loss order. This works on the basis that you pay a small premium which guarantees to close you out of the trade price regardless of how volatile the market is. The premium will be refunded to you of the GSLO is not triggered.
Keep an eye on your position after placing a trade, monitor your open positions and follow your real-time profits as well as losses. Also remember than losses can also exceed your deposits.
Types of commodity trading
There is a large range of commodity types, one being agricultural such like soybean, wheat and corn, another energy which could be in a form of oil and gas trading and lastly, precious metals such as gold and silver which tend to be more popular at the moment.
Commodity markets trade in a very similar manor to other financial markets. If you are a first time commodity trader it’s worth reading further.
There are two main types of oil that are currently being traded. One is Brent Crude Oil and the other is US West Texas Intermediate. The difference between the two is simply a blend of ingredients but the price can still vary when trading.
Factors influencing oil price
The price of oil isn’t just dependent on how much oil is being pumped out of the ground, it’s a fuel source internally and when the world economy is expanding and factors are burning fuel sources than the need is greater than the usage. In simple terms the price of oil will go up the greater the global need.
In early 2016, crude oil was trading below $30 a barrel.
Since oil prices are also impacted by world events such as politics and socioeconomic situations, including the Middle East crisis, it helps as an oil trader to keep on top of news so as not to get caught out by an unexpected shift in oil prices.
Other ways that could influence the rise or fall in oil prices could include decisions made by the Organisation of Petroleum Exporting Countries (OPEC) or other oil producing countries like Iran and how much of that oil is supplied to the market.
There are also plenty of media based factors that can also influence the price of oil such as the US release figures showing the economy is improving far quicker than expected which could course a surge in the value as oil traders will assume that the demand will increase putting the cost of the barrel even higher.
On the flip side oil producing countries would then produce even more oil thinking that the demand is greater due to the major economic news releases which would then in turn drive the price down again.
The gold standard
Another very popular commodity is gold, which has long been valued as point of wealth for centuries especially as the Californian gold rush back on the 1840’s would prove going forward. These days it’s traded like any other valued commodity and is very important to all traders around the world.
Traditionally gold is understood as a ‘safe haven’ a place that investors feel a lot safer than other risker assets. Although gold can be traded in most countries around the world, the price is usually in dollars, ‘dollars per troy ounce’.
Because of this relationship between dollars and gold, it does mean thatr dollars will have an influence on the price of gold. If the dollar price goes up the then the gold asset will surely become more attractive than other assets.
Another factor is that if the US central bank or Federal Reserve decide to cut interest rates which would normally weaken the value of the dollar, the price of gold will actually rise. because gold is such a global commodity it pays to keep a watchful eye on the major economic announcements such as interest rates and unemployment figures, which are released on a regular basis.
Energy markets are equally popular commodities for trading, renewable energy has produced added interest like national gas, oil and gasoline. Just like the gold markets, politics and national events would play a part in the value of the energy markets so it’s always wise to keep an eye on that news and economic releases.
A good way to get a feel of how the commodity markets are changing is too watch them over a period of time and check out for trends and press releases to see if there are any patterns your global events that are due to drive the prices.
FX and CFDs are complex trading instruments and come with high risk of losing money rapidly due to leverage. 55% of retail investor accounts lose money when trading with this provider and or with any provider. You should consider whether you understand how CFDs and other investment vehicles work and if can afford to take the high risk of losing your money.
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