Commodities trading explained
On our platforms, we provide CFDs, which are contracts, based on the price of an underlying asset, that don’t grant ownership of the physical goods. This means that you don’t have to actually own the asset, yet you can trade it whenever you want. Quite convenient that you won’t have to have 100 barrels of Oil delivered to your front room! And probably not very secure having bars of Gold stored at your home! Instead, you will speculate on whether you think the price of the asset will move up or down.
Start trading commodities with AvaTrade and enjoy the benefits of trading with a regulated, award-winning broker!
You can trade a wide range of markets from metals to energies and more through CFDs, with AvaTrade.
- Trade hard or soft commodities on our advanced MetaTrader 4 & MetaTrader 5 trading platforms
- Trade on the go anytime, anywhere with our innovative trading app AvaTradeGO
- Autotrading solutions available, including Expert Advisors and copy trading platforms like Zulutrade and Duplitrade, as well as the Guardian Angel add-on.
- Start today with a small amount and trade up to 10:1 leverage available to you
- Get competitive spreads
- 24/5 live client support in your language
At AvaTrade you can trade commodities online easily. Try hard or
with the leading regulated broker and enjoy all the benefits that go along with it.
What are Commodities
A commodity is a raw good used in business. Each commodity, when traded on an exchange, must meet standards and grades. They may each be slightly different, however, ultimately are the same amongst all producers. There are two different kinds of commodities, soft and hard:
Soft commodities – This refers to items that are grown as opposed to mined. For example, agricultural products such as sugar, corn, wheat, coffee and more. Produced by farmers, these instruments are highly sensitive to climate and weather changes, and have cyclical price patterns dictated by seasons.
Hard commodities – This refers to items that are mined, such as Gold, other precious metals, diamonds and oil, along with other energy products.
Various factors can affect the prices of commodities and contribute to their fluctuation significantly.
Supply and Demand – If supply and demand balance out, prices should stay the same. However, any time the market thinks the supply will be lower due to weather or production cuts, prices tend to go higher, and vice versa; higher supplies tent to lead to lower prices.
Stock and Inventories – Production of these commodity prices can be affected by the following; weather, crop diseases, production issues with staff, political and economic environments which form additional charges such as taxes, trade laws, subsides from governments etc.
Currency Strength – Connections between some of the worlds most traded commodities and Forex pairs are common. For example, the Canadian dollar (CAD) is connected to oil trading prices since Canada is a large exporter of oil. If you are aware of these common connections, then monitoring them and trading at the right time are important to making the right decisions in trading. It should be noted that most commodities are priced in US dollars, and thus it would be wise to monitor the dollar index in order to better forecast the price dynamics. We allow forex trading from the same trading platform, so you can use these correlations to your advantage.
Inflation – When there is inflation, the price of a commodity usually changes accordingly.
Why Trade Commodities
Having a variety of commodities in your trading portfolio can be a great addition as it brings diversity. Commodities do not pay dividends, at the same time they do not go bankrupt.
Some advantages are:
- They can protect against inflation; when economies experience inflation, the prices of commodities have a tendency to go up.
- Precious metals can be used as safe haven trades to hedge against other assets when markets under stress. Often Gold is negatively correlated to the USD and US stocks, so when money runs away from these assets, it tends to our into Gold.
- Profits can be large; Commodity CFDs are traded on margin, which means higher potential returns as well as risks.
- Low startup costs, start trading with just €100 or try demo trading for FREE
- Trade from home or on-the-go with our leading app, AvaTradeGO
- Profit from long or short positions, meaning trade when prices rise or fall
Main Commodities FAQ
The most popular commodities for traders are gold and oil. This is because both enjoy excellent liquidity and sources of information. However these are not necessarily the best commodities to trade. The best commodity for any trader is the one they understand the best. One where they have detailed knowledge about the market, or about supply and demand for the particular commodity. It’s this deep knowledge that makes it easier to successfully trade any commodity. And anyone can get this type of knowledge through research and study.
The traditional way to trade commodities is by using futures contracts. However this is not always the best way to trade commodities. For one thing many traders don’t have a futures trading account. And trading futures requires a fairly large upfront investment. Plus futures involve leverage, and while this can inflate gains, it can also magnify losses. All of these issues can be avoided by using CFDs to trade commodities. Liquidity is never an issue with CFDs, you can get started with a few hundred dollars, and you control the leverage, or lack of leverage, when trading CFDs.
Many people think about trading commodities and they get the image of the trading pit, similar to what you see in the movie Trading Places, where Eddie Murphy and Dan Aykroyd corner the market on orange juice futures. While commodities trading may have looked like that in the past, in the 21st century it is electronic and commodities markets can be traded online from all corners of the globe. All that’s needed is a trading account with a broker that offers access to the commodity markets and anyone can trade commodities online.
Ready to start trading commodities with AvaTrade? Register today and enjoy the benefits of trading with a regulated, award-winning broker!