ExonMarkets offers commodity trading on a Contracts for Difference (CFD) basis. This means that the commodity is exchanged via a contractual deal between a buyer and a seller to trade on the difference on the price of the commodity.
The beauty of trading CFDs on commodities is that a trader is not actually buying the underlying asset, hence not requiring the actual delivery of it. This allows traders to speculate regarding the rise and fall of the traded instrument, allowing them to take either a short or a long position. This implies that the trader hopes for the price to either decrease (short position) or increase (long position). Either way, traders can profit from the price movement of the commodity.
Thus, traders of CFDs on commodities enjoy greater flexibility as they have more opportunities to profit from the market movement. While some commodities are more stable than other instruments, traders still stand at a high risk of losing when taking either a long or short position on these types of assets.
Commonly Traded Commodities
The most commonly traded commodities are in sectors of metals, energies, and soft commodities. The metal sector includes the likes of gold, silver, and copper while the energy sector has oils and natural gas. Finally, commodities such as cocoa, coffee, and sugar are in the sector of soft commodities.
Basics of Commodity
To begin, you need to first choose the commodity you wish to trade on. This choice will usually be made based on the price of the unit of the commodity. As mentioned in the previous section, commonly traded commodities fall under the three major sectors of metals, energies, and soft commodities.
Next, you need to choose the size of your preferred deal. This is determined by the leverage of the instrument, which allows you to buy more commodities above your your investment.
Finally, and most importantly is the direction in which you choose to trade. To make a profit while trading CFDs on commodities, you must be able to predict the trade direction correctly. You will have to buy if you believe that the price of the commodity will rise and sell if you believe it will fall. Once you have made this decision, you may close your open commodity position deal and make a profit when the price of the commodity rises or falls in your favor.
Fun Fact - The most popular of all commodity trading is Gold within the sector of metals.
Next, we will look at Gold as the chosen commodity and show how to trade CFDs on it.
Trading CFDs on GOLD
Trading in gold dates back to 2,000 B.C., the historic moment when Egyptians began mining the commodity at the bottom of rivers in the form of nuggets or small pieces. It later became a means of exchange as a currency issued by a country's monetary authority. Though jettisoned at the onset of World War 1 by powerful economies, it has since become a seriously sought-after commodity with the availability of it being traded online in modern times.
Typically, investors or buyers are the main beneficiaries when trading CFDs on gold, rather than the seller. This is because investors make a profit when gold’s price changes during the contract duration. Additionally, like other commodities, it doesn’t require the buying of the underlying asset. Like other CFDs, there can be also be shorting and trading on a margin when investing in Gold CFDs.
The Following Factors Can Influence the Price of Gold:
Demand and Supply: You must keep tabs on what is happening within the jewelry industry as it greatly affects the demand, supply, and price determination of Gold.
Market Sentiment: During a time of political instability in a major gold supplying nations or regions, there’s bound to be uncertainty which increases the prices of gold.
Market Volatility: When the market is most volatile and commodities markets are unpredictable, gold is typically seen as a haven investment due to its historic stability.
Currency Values: Generally speaking, typically the value of the US dollar exerts a powerful influence on the value of gold.
ExonMarkets can help you enter the world of Commodity CFD trading and Gold trading by dissecting all these variables through insightful articles, analysis, and interviews from market makers.