Who trades commodities?
Raw materials are natural resources such as oil, gas, coffee and soybeans. Commodities are traded through futures contracts on stock exchanges around the world by producers and buyers. When a futures contract expires, these traders exchange the actual commodity. The second type of traders involved in commodity markets are speculators i.e. traders who buy and sell commodities for profit.
The two most traded commodities are oil and gas, also known as hard commodities. Of the two, crude oil is the most important because of its heavy use in transportation and production. The price of oil is such a powerful global indicator that it can dominate politics as well, as oil-intensive countries tend to have considerable influence over the global financial system.
Why trade commodities?
Whether you are a trader or not, oil and gas prices affect us all on a daily basis. In the past, investing in commodities was limited to people who had significant capital as well as sufficient time and expertise. Access to commodity markets is now also available for non-professionals, allowing online traders to capitalize on both short and long term price fluctuations.
Energy markets have their own characteristics, which is why oil and gas trading is a popular choice among forex traders who want to diversify their trading. Known for their high liquidity, the buying and selling of oil and gas is available 23 hours a day throughout the trading week.
What influences the prices of raw materials?
Unlike forex, where the value of a currency is closely tied to the performance of the economic zone that uses it, commodity prices are heavily influenced by supply and demand. Here’s what you need to know to track the key factors that drive supply and demand in the commodities industry.
The price of the US dollar
Since commodities are valued in US dollars, the fluctuation of the USD has a direct effect on the trading price of commodities such as oil, gas, coffee, and soybeans.
Extreme weather conditions, such as hurricanes, tsunamis and earthquakes, can have a dramatic effect on commodity prices.
Geopolitical forces have a direct impact on the energy sector, which can be seen as both a risk and an opportunity. International diplomacy, civil unrest and exchange rate fluctuations can dramatically increase the volatility of oil and gas markets.
OPEC’s production targets
When it comes to the oil trade, OPEC is a key organization to watch. The Organization of the Petroleum Exporting Countries is made up of 14 nations. OPEC sets production targets for its members in order to regulate supply. Typically, when production targets are reduced, the price of oil increases.
Benefits of commodity trading
Commodities trading has become one of the most popular ways to diversify a portfolio, especially during bearish stock markets, as commodities tend to move in the opposite direction to stocks. Here are other reasons why traders choose to trade commodities online:
Available 23/6 hours
When it comes to energy commodities, the oil and gas markets are available around the clock with only one hour break throughout the trading week. All you need to participate is a trading account with a reliable broker.
High liquidity market
The commodities markets are heavily traded in large volumes by different participants around the world, providing several trading opportunities for short and long term traders.
Go long and short
Unlike traditional investing, which involves buying and holding with the expectation of price appreciation, you can profit from both price rises and falls by going long or short. At ThinkMarkets, you can start trading the highly volatile commodity markets with starting capital as low as $ 250.