want action, trade commodities

Trading CFD's are risky with a massive risk to reward ratio, not for everyone. However more and more people are playing the market, assisted with the availability of instant news and the growth in numerous user friendly platforms.

Trading is evolving and is allowing anyone to have a chance to chance the markets.

All you need to succeed is to find a regulated brokerage with high liquidity (lots of money).

A wining strategy, when to enter & exit. And to know the future!



Why trade commodities?


Commodity prices can be exceptionally volatile, creating opportunities for traders to profit by going long or short on these markets.


Commodities are the basic building blocks of the global economy, upon which most other goods are created. They fall into two broad categories. ‘Hard’ commodities are natural resources that must be mined or extracted. These include energies such as oil and natural gas, and metals such as gold and aluminium. ‘Soft’ commodities, on the other hand, are agricultural products such as crops and livestock.


Commodity markets are popular with traders because prices can be very volatile, meaning there are often opportunities to profit by going long or short. Factors that can affect pricing include consumer trends, weather patterns, infrastructure, government policies, economic performance, reserve levels and currency valuations, among others.


What are the most traded commodities in the world?


Brent crude (oil)

Steel

WTI crude (oil)

Soya beans

Iron

Corn

Gold

Copper

Aluminium

Silver


Value of leading imports and exports commodities traded worldwide in 2019, by sector(in million U.S. dollars) statista


1. Crude oil: Brent crude

Crude oil is one the world’s most in-demand commodities as it can be refined into products including petrol, diesel and lubricants, along with many petrochemicals that are used to make plastics. Brent crude is one of the two major types of oil used to benchmark global prices, along with West Texas Intermediate (WTI). It is a high-quality ‘sweet light’ oil, meaning it has a low sulphur content and density, and is therefore relatively easy to refine into usable end products. It is drilled from oil fields in the North Sea’s Brent, Oseberg, Forties and Ekosfisk fields, off the shores of the UK and Norway. This proximity to the coast makes it relatively cost effective to transport internationally.


Like all commodities, the price of Brent crude is dependent on supply and demand factors. Historically, demand for oil has been correlated with global economic performance. Prices generally rise during boom periods – as more oil is needed to manufacture and transport products – and fall during economic slowdowns. On the supply side, global supplies of oil – rather than the supply of Brent crude specifically – has the most influence over this commodity’s price. Here the Organisation of the Petroleum Exporting Countries (OPEC), which sets production quotas for member countries, has historically had a great deal of influence. However, this has waned in recent years as the US, which is not an OPEC member, has increased shale production. Learn more about the history of crude oil.


2. Steel

Steel is an alloy of iron and carbon that often includes other elements such as manganese, chromium, nickel and tungsten. It is an important commodity because it is extremely strong and relatively low cost, making it suitable for industrial uses in construction, infrastructure and manufacturing.


As a result, steel prices have historically been fairly well correlated with global economic performance – generally rising and falling in line with economic output. However, as an alloy, its price is dependent on the cost of its constituent products and the costs of shipping them. In recent months, prices have also been heavily influenced by Trump’s trade war with China, which has seen the president impose tariffs on non-US steel.


Its composition can vary substantially dependent on the desired end use, so there is no agreed standard for the alloy. As a result, there are multiple futures contracts for steel, which can make it difficult to trade. With IG, you can trade steel indirectly by speculating on constituent commodities, particularly iron ore.


3. Crude oil: West Texas Intermediate (WTI)

MT4 Chart, weekly volatility plainly visible.


West Texas Intermediate (WTI) crude – referred to as US crude on IG’s platform – is the second type of crude oil on our list. It is another high-quality ‘sweet light’ oil, which has an even lower sulphur content and density than Brent crude. WTI oil is drilled in various US states – including Texas, Louisiana and North Dakota – and sent to Cushing, Oklahoma for price settlement.


In the past, prices of WTI oil have been heavily dependent on US consumption. This is because Cushing is a landlocked area, making it difficult to transport oil internationally and leading to a divergence in the cost of WTI and Brent crude barrels. However, the recent reversal of the ‘Seaway Pipeline’ to take oil from Cushing to Freeport, Texas (on the Gulf of Mexico) – instead of in the opposite direction – has made it easier to export this commodity, which has generally seen prices more closely correlated with Brent crude.


4. Soya beans

Soya beans – known in the US as ‘soybeans’ – are an important commodity, primarily because they are rich in protein and relatively cheap to produce. They are used to make a variety of food and agricultural products, including soyabean meal (animal feed), soyabean oil, and meat and dairy substitutes such as tofu and soy milk. They can also be used to produce biodiesel. The majority of soyabeans are grown in the US, followed by Brazil, Argentina, China and India.


Soyabean prices can be affected by demand for animal feed, biodiesel, and meat and dairy substitutes, along with factors that could affect supply such as unusual weather conditions. As the US is a major producer, prices can also be influenced by the strength of the US dollar – generally rising in price (nominally) as the US dollar falls and vice versa. In 2018, speculation about Chinese tariffs on US soyabeans – and their eventual implementation – also had a dramatic impact on prices.


5. Iron ore

Iron ores are the rocks and minerals from which iron can be extracted. The vast majority of iron ores are used to produce pig iron, which, in turn, is fed into steel production. However, extracted iron can also be used to produce cast iron, magnets and catalysts for various industrial and chemical uses.


Iron is a very bountiful commodity and is relatively easy to mine. This has meant that historically there has normally been sufficient supply to meet demand, and that prices have been relatively stable. However, since 2000 there have been significant fluctuations in price due to changing Chinese consumption. The country has rapidly urbanised – requiring vast amounts of steel – and experienced phenomenal economic growth. Because of this, Trump’s tariffs have also had an indirect effect on iron ore, with prices falling due to a reduction in demand.


6. Corn

Corn – also known as ‘maize’ – is an important soft commodity. It is a food source that is used primarily to produce animal feed, ethanol, corn syrup and starch. There are several varieties of corn – the main ones being dent, flint, pod, popcorn, flour and sweet corns. The majority of corn is grown in the US, followed by China, Brazil and Argentina.


Much like soyabeans, the price of corn is heavily dependent on the demand for animal feed and biofuels, as well as the strength of the US dollar and weather patterns. Agricultural subsidies – particularly US subsidies – can also have an effect on prices. Corn production is currently heavily subsidised in the States, which provides a strong incentive for production and helps maintain global supplies.


7. Gold

Gold is a precious metal that has been highly sought after for millennia, due to its metallic yellow colour and sheen. Nowadays it is primarily used for jewellery production and as an asset for investment. However, a small amount is also used in industry as it is highly resistant to most chemical reactions and conducts electricity. The majority of gold is mined in China, followed by Australia, Russia and the United States.


Gold is widely considered to be a ‘safe-haven’ asset, as it tends to hold its value or rise in times of economic and political uncertainty. For this reason, many traders move money into gold when the dollar is falling, so gold’s price often has an inverse relationship with the value of the dollar. Find out more about the factors that influence the price of gold.


8. Copper

Copper is an important base metal because it is an exceptionally good conductor of both heat and electricity, and is also corrosion resistant and weatherproof. It is primarily used to manufacture electrical wire, pipes, roof tiles and industrial machinery. However, it is also used to produce alloys including brass and bronze. Copper is primarily mined in Chile, followed by China, Peru and the US.


Because of its many uses in industry and electronics, the price of copper can fluctuate significantly in line with economic output. Supply, on the other hand, can be affected by trade disputes, seasons and infrastructure concerns – particularly within key South American suppliers such as Chile and Peru.


9. Aluminium

Aluminium is another important base metal, one that is exceptionally light and corrosion resistant. It is often combined with other elements – such as copper, zinc and magnesium – to form alloys that are both strong and light. For these reasons, aluminium, and alloys containing it, are useful for commercial applications including the manufacture of vehicles and planes, packaging (eg cans) and construction. The majority of aluminium is produced in China, followed by Russia, Canada and India.


The price of oil and electricity can affect the price of aluminium, as separating the element from ores is very energy intensive. Demand is driven by manufacturing and construction, so economic developments in economies such as China can have a big effect on its price. And, once again, this is a commodity that was singled out for tariffs by the Trump administration this year – so US policy is likely to play a role in pricing aluminium.


10. Silver

Silver is the second precious metal on our list, and is another element that has been highly sought after for thousands of years. Unlike gold, roughly 50% of demand for silver can be attributed to its industrial uses, which include solar panels, photographic films and electrical contacts. Like gold, however, a large proportion of demand for silver is also driven by jewellers and investors.


Silver is also considered a ‘safe haven’ asset, so its price will often rise during times of economic uncertainty. However, gold is often seen as a more reliable investment because its price is less dependent on demand from industry, which often takes a hit when economic output falls. On the supply side, silver is most often extracted from the ores of other metals – particularly copper – so fluctuations in demand for these other elements can affect silver’s price. Find out more about the factors that influence the price of silver.


Learn what moves a commodity's price

Commodities prices are driven by the forces of supply and demand, which means there are a variety of factors that can impact them.

Competition The introduction of alternative technologies and goods can reduce the demand for older commodities. For example, the rise of renewable energies has significantly reduced investment in oil and gas.

New companies can also have a knock-on effect in the market – especially those with more efficient supply chains and faster production lines, as these will lower costs and be more appealing for shareholders.

Politics Political events and policies can cause changes in prices if they have an impact on exports and imports. For example, increases in import duty can drive up prices.

Macroeconomics A weak economy often lowers the demand for commodities – especially those involved in building and transport. Whereas a booming economy can result in increased demand which could lead to higher prices.

Seasonality Agricultural commodities are particularly dependent on seasonal cycles that impact production and harvesting. Prices tend to rise when harvest forecasts are positive, and decline after the harvest, when the market is flooded with products.

Weather Extreme weather changes and natural disasters can impact natural material production and transportation. For example, colder temperatures can freeze the ground or compromise the goods. Anything that impacts the supply chain, decreasing output, can cause market prices to rise.

The five types of commoditise trading techniques


Position trading


A trader keeps a long trading position open to benefit from the change in the commoditity price over a long period of time.


News trading


A shorter-term strategy to trade that refers to trading based on news, such as central bank policy statements or economic data releases.


Recommended broker to trade all the above commodities.



Trend trading


Traders look for patterns in the movement of the commodity price to identify strong trends. When the price is in an upward trend it may be expected to continue rising, while a downward trend could see the price continue to fall.


Traders often use technical analysis to identify and confirm price trends. Technical indicators can help them to determine when an upward or downward trend changes and adjust their position accordingly.


Day trading


Day traders hold a position open for a single trading session, acting on intraday commodity price fluctuations. As most commodities are highly liquid assets with small spreads between the bid and ask prices, it lends itself well to day trading. Day traders can use news events to focus on buying or selling a commodity on a specific day or time, especially news on Gold and oil.


Price action trading


Price action strategy is a commodity trading system where traders look at the recent price movement to decide when to enter or exit a position. Unlike most technical analysis-based strategies, traders do not study charts going back over a long time period. Instead they focus on the recent price action only.