Some traders choose to diversify their assets when trading. One of the ways to do that is choosing commodities.
Commodities are all around us and are a large part of the life of everybody around the world – from the oil we use in our car to food products made from soybeans, cocoa and corn. That makes CFD trading on commodities a popular investment channel for some traders interested in diversifying their portfolio or who seek more potential stability in times of volatility in the financial markets.
Traders looking to get into commodity trading should know the four types of commodities today.
Most popular commodities
In times of economic or geopolitical turmoil, traders usually flock to precious metals such as gold which is seen as a safe-haven commodity due to being historically seen as a popular metal in such times.
Agricultural products have an active trading market behind them. Agricultural commodities usually become volatile in summer.
Energy is one of the most common commodity traded in global financial markets. Occurrences and developments, such as the on-going production cut by the Organization of Petroleum Exporting Countries, should be considered whenever trading energy commodities.
Commodities markets, just like other markets are usually driven by supply and demand.
If the supply is high, the demand is low which decreases the price and if the supply is low, the demand is high which means higher prices. Events such as a drought could potentially affect the supply of agricultural commodities thus increasing demand and, thus, prices. Global development and advances in technology also have an effect on prices.
Where to Trade Commodities
There are several commodities exchanges in the world. Some of them focus on one commodity while some allow a variety of commodities to be traded. For example, the London Metal Exchange, most obviously, only has metal commodities.
Over in the United States, the most popular commodities exchange are those under the CME Group. The CME Group was a result of a merge between the Chicago Board of Trade and the Chicago Mercantile Exchange in 2006.
Commodity trading in a commodities exchange have set standards which traders must follow. This is to avoid buying commodities that are sub-par in quality.
FXBFI Broker Financial Invest Ltd, trading as 101investing, is not permitted to provide regulated financial services to residents of the United Kingdom.
Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 85% of retail investor accounts lose money when trading CFDs.
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.