If you’re not familiar with the fundamentals of the stock market, the stock market trading information in your favourite newspaper’s markets section can be confusing.
Commodity trading is a centuries-old practice that has developed over time. Today’s commodities come in a wide variety of forms, and modern-day trading takes place on exchanges. To access the commodity markets, one must first open an account with a trading platform, and it’s even more helpful to enrol courses on commodity trading for better understanding. Here’s a guide to commodity trading that will teach you all you need to know before you get started:
What is commodity trading?
Commodity trading resembles stock trading in many ways. Stock trading involves buying and selling company shares, whereas commodity trading involves buying and selling commodity products. Commodities are exchanged on exchanges, where traders buy and sell them to profit from the market’s volatility.
Trading in commodity futures and spots is what commodities trading is all about derivatives. In commerce, a commodity is a primary raw resource that institutions or people buy or sell. They are frequently used as the foundation for more complicated goods and services. Commodities are classified into four categories:
Crops and farm cattle are examples of commodities that provide food and contribute to other businesses such as the textile industry. Sugar, cocoa, soybeans, wheat, cotton, cattle, and hogs are a few examples of agricultural commodities.
This category contains both base metals such as aluminium and iron and precious metals such as gold, platinum, etc.
- Environmental commodities
Renewable energy certificates, white certificates, and carbon emissions are all examples of environmental commodities.
- Energy commodities
Energy sources such as oil and natural gas are utilised for transportation and in our homes, factories, and other places around the world. Uranium, ethanol, coal, and electricity are among other examples.
Why trade commodities?
Commodities are a good choice for investors who want to profit from price fluctuations while diversifying their portfolios. Here are a few things to think about if you’re new to commodity trading:
Commodities contribute to portfolio diversification, and Returns on commodities have little to no link with returns on other major asset classes such as equities and bonds. This means that when equities and bonds fall in value, commodities usually rise. (However, this should not be interpreted as a general rule.)
- Flexible trading schedules
Commodity markets are open for a considerable portion of the week, allowing for round-the-clock trade. This means that you can swap whenever you want.
- Defend against inflation
Inflation has a different impact on commodities than it does on bonds or stocks. This is because the value of currency depreciates as a result of inflation. Financial assets such as bonds and stocks lose real value as a result of this. Commodities, on the other hand, keep their price and value even when inflation is high.
- Higher profit margins
Commodity markets are highly volatile, as their prices can vary dramatically. Commodity trading investments that are well-planned can yield more significant returns than other assets.
Ths information is provided solely for educational purposes; if you wish to engage in commodity trading, we recommend our Tips2Trade commodity course, which is a complete detailed course that covers all of the fundamentals and essential topics related to commodities. Our course also aims to raise awareness about the importance and benefits of trading in the commodity and currency markets.