Commodities are basic items of consumption of the worldwide economy. Do you have an opinion on gold, silver or coffee? Act on it! Commodities are traded around the world on different exchanges and are usually traded as future contracts.
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. Traders like this aspect since you do not have to actually own the asset, yet you can trade them whenever you want.
What are Commodities
A commodity is a good used in business or on a market. 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, anytime 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.
– When there is inflation, the price of a commodity usually changes accordingly.
– 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 successful 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.
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.
Why Trade Commodities
Having a variety of commodities in your trading portfolio can be a great addition and can potentially increase returns. Commodities do not pay dividends, at the same time they do not go bankrupt.
Some great advantages are:
- They can protect against inflation; when economies experience inflation, the prices of commodities have a tendency to go up.
- Profits can be large; commodity CFDs are traded on margin, which means higher potential returns as well as risks.
- Low startup costs, all you need is your computer and $100
- Trade from home or on the go with our new app, USP Capitals MT5
- Profit from long or short positions