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The Complete Guide To Commodity Trading For Beginners

January 6, 2023

An extensive variety of commodities are traded in the current trading world and all these trading transactions are facilitated through the exchange platform. Trading commodities is a timeworn practice and has progressed massively. You are required to hold an account with the respective trading platform which shall facilitate you to access the commodity markets. As you’re a starter with Commodity Trading, we are here to guide you on the commodity markets.

 What constitutes commodities?

Iron, Crude Oil, Natural Gas, Steel, Cotton, Silver, Grains, Pulses are all examples of commodities. Commodities are indispensable materials to make processed goods.

 What does commodity trading mean?

In stock trading, individuals transact shares of certain companies. Similarly, in commodity trading, commodities are the basis for trading on certain exchanges. Traders are involved in buying & selling the commodities and aim for profit from the exchange of these commodities.

 The newbie traders are facilitated with the Contracts For Difference (CFDs) options for trading commodities. CFDs facilitate traders to be benefited from price changes without claiming ownership of the primary security.

 Types of commodities traded on Commodity Trading:

 Commodities are mainly graded ashard and soft commodities. Mined resources or natural resources extracted from the ground are hard commodities. Hard commodities include copper, crude oil, natural gas, and gold. Agricultural products constitute soft commodities. Soft commodities include sugar, grains, pulses, farm-raised livestock.

Let’s understand the Types of Commodities traded onCommodity Trading under four main categorizations:

 1. Metal commodities:

  • Hard metals like Iron, copper, aluminum, nickel – Used in construction and manufacturing fields.
  • Platinum, silver, and gold – Used for making jewelry and for investment purposes.

  2. Energy commodities:

  • Oil and natural gas – used for transportation
  • Uranium, ethanol, coal, and electricity – Used as forms of fuel.

 3. Agricultural commodities:

  • Sugar, Grains, Pulses, Cocoa, Wheat, Cotton – contribute to the food supply.
  • Farm-raised livestock like cattle and hogs – contribute to food supply and the textile industry.

4. Environmental commodities:

  • This includes all renewable energy sources which tackle greenhouse gas emissions.

 Why should traders diversify their portfolios through commodity trading?

Benefits are numerous for traders who choose commodity trading to diversify their portfolios. A few of them include the below:

●     Opportunities to make a Profit:

The prices of the commodities are unstable. When traders transact on multiple trading opportunities, they can profit with the upward price movements.

●    Increasing the gains:

All traders are recommended to hold a considerable amount of funds as deposits. This shall facilitate your gains. Losses can also result when not used vigilantly.

●    Most convenient:

The trading schedules are very flexible as traders can trade at any time.

●    Lower risks for traders:

It’s experienced that prices of commodities increase during the seasons where the price of stocks and bonds has a fall. This shall facilitate the traders to experience lower risks.

●    Protect the traders:

Economic crises and Natural disasters affect the economy and lead to inflation. Traders tend to lose their purchasing power during this period. When traders choose to trade on those commodities which tend to rise during unpredictable periods acts as a protection to the traders.

Market research and knowledge about the prices of the commodities and their corresponding leverage risk is very essential when involved in commodity trading. Risks can be managed by implementing risk management strategies. Fluctuations in the supply and demand of the products also contribute to the commodity prices fluctuating.