Are you interested in commodities trading?
Well then you are in the right place, here you will find all the information you need to perform commodities trading to the fullest.
I will also advise you which are the best brokers for trading commodities, so read on.
Commodities trading is certainly one of the most profitable forms of speculative investment. Indeed, today it is among the most interesting markets for those who want to trade online.
We can define commodities as those raw materials that can be treated in a standard manner, are not perishable and can be easily transported.
A large part of the transactions that take place every day on the financial markets are precisely commodity transactions.
Many traders are able to get high earnings just with commodities trading.
And we’re not just talking about professional traders.
Even beginners can get really good results by trading commodities.
Be careful though, revenues are the result of study and application, you do not become a profitable trader from day to night.
In this post I will show you how!
Disclaimer
The information contained in this article is for illustrative purposes only. They are not in any way a financial advice or an invitation to invest your money following the information below. Trading is a high risk business, don’t invest more than you are willing to lose.
What is a commodity?
The word commodity can be translated with raw material.
So commodity trading is nothing more than online trading of commodities.
But be careful: not all raw materials can be automatically considered as commodities.
The basic problem is that in order to be able to operate on a raw material in financial markets, it must be possible to standardize the quality and quantity of the raw material.
For this reason, for example, there is no online trading of diamonds while it is possible to trade gold online.
Gold is a metal that can be weighed and evaluated in a standard way.
Diamonds, on the other hand, cannot be priced in a uniform and standardized way because each diamond is actually different from the other and has a different price.
Commodities trading: how to start!
First, let’s look at the meaning of commodities trading. We define commodities as a raw material that:
• It is easily transportable
• It is not perishable
• It can be exchanged in a standard way
Some of the commodities we can mention are gold, oil,silver, nat gas,copper, soy, wheat and so on.
All these raw materials are commodities because they can be easily transportable, are not perishable and can be traded in a standard way, for example based on weight or quality.
Beginners who approach commodity trading think that it means buying and selling commodities online.
Trading commodities means getting a profit by taking advantage of fluctuations in the prices of listed commodities.
Those who trade in commodities can always make a profit, both when the price goes down and when it goes up.
Why is it important?
Because most commodity trading operations take place with derivatives. Even rookies can profit thanks to these derivative contracts.
The financial instrument that is usually preferred for trading commodities is the Contract for Difference, also known as CFD.
How CFDs work
Why is this contract so appreciated by those who trade commodities?
CFDs are a very simple contract to understand and use: the value of a CFD depends exclusively on the value of another financial asset.
For example, the price of a CFD on oil has the same value as oil. If the price of oil rises, the price of the CFD also rises and vice versa, if the price of oil falls, the value of the CFD also drops.
To trade oil, then you have the possibility of:
• Buy CFDs on oil: in this case you get a profit when the price of oil rises
• Sell CFDs short on oil: in this case a profit is obtained when the price of oil falls
Clarification: short selling is a speculative operation that generates profits when the price of an asset falls. It is not necessary to have bought the asset before selling it .
The profit with CFDs is proportional to the extent of the price change. Profits can be multiplied by applying leverage. The value of the leverage varies according to the type of asset and on the type of trader.
In fact, European an American legislations provide for restrictions on the leverage that may apply to retail traders.
The professional investor lobby can operate with much higher levers.
Summing up!
Let me summarize the advantages of using CFDs to trade commodities:
• You can always make a profit, both when the price goes up and when it goes down
• They are very easy to use
• It is possible to use leverage to multiply profits
• No commissions are paid
• You can also start with small capital (usually between 200 and 500 euros) *although it would be ideal to start with a capital of $ 1.000-5.000.
After all this is why CFDs are the preferred tool for both professional traders and beginners.
Why does everyone want to trade commodities?
Why is the commodity market so attractive to traders?
Traders usually do not invest without a reason. If a trader likes a market so much, it’s because he can make a lot of money. And the commodity market is perfect for this very reason.
It is a very liquid market, where there are also many actors who do not act for speculative purposes but because they actually need the raw material.
Another reason why the commodity market is so rich in income opportunities is that it is closely related to the forex market and the stock market.
To give an example, observing the behavior of the dollar is really easy and intuitive to understand how oil will move.
Usually the dollar goes up the oil goes down and vice versa. This simple mechanism allows traders, even inexperienced ones, to score excellent hits with oil.
This is just an example, because the correlations can be really many.
Commodities trading: What do commodity prices depend on?
We have already seen that to trade commodities with CFDs it is sufficient to make a forecast on prices: if the forecast is correct, you earn, whether the price goes up or the price goes down.
The commodities respect the law of supply and demand in a rather linear way: if the demand for a commodity increases, the price also increases. If, on the other hand, demand drops, the price also drops.
Also the offer of a particular commodity can influence the price; the listing of agricultural commodities, for example, often also depends on weather conditions and the abundance of the crop.
As for oil or metals, prices may also depend on geopolitical conditions that influence commodity production.
Typical example: the price of oil also depends on the political and military situation in the Middle East. If there are tensions (or wars) the price increases, if instead the situation is calm the price tends to decrease.
Commodities trading: Which broker should you choose?
Choosing a reliable broker is a very important step to start investing in the right way.
Below I have compiled a list of the six best brokers with which to trade commodities.
Trading Commodities with eToro
Etoro is my first pick because it offers considerable advantages, especially for beginners.
I know this platform very well, and I don’t deny that I’m a big fan of copy trading, below you’ll understand why.
It offers a really simple and user-friendly interface that allows everyone to operate easily.
One of the main advantages of eToro is the possibility of copytrading. This is a particularly intelligent form of automated trading.
How does eToro copytrading work?
The broker provides an easy to use internal search engine that allows you to find the best professional traders who have had important earnings in the past.
Each of these traders has a public profile that reports the profits generated over the years, the level of risk, their equities ,their copiers (other people who copy them) and other useful data you must check to determine if the trader is good enough to be copied.
I wrote a super simple post where I show you how to find the best eToro trader. You can read it HERE.
Once you have identified a good professional trader, one who has gained over the years, you can copy him clicking on “copy”.
All his operations will be replicated in your account automatically.
This is a great advantage for the beginner.
No wonder, then, if a large number of novice traders choose eToro to begin with.
The advantage of eToro lies not only in being able to generate profits immediately, it is also a great opportunity to learn from pro and chat with them.
Here are the commodities available:
- gold
- copper
- natural gas
- oil
- platinum
- silver
The account is completely free and there are ZERO commissions!
In addition to commodities, it is also possible to trade currencies, cryptocurrencies, stocks, indices.
You will also have a demo mode to test their copytrading feature and verify which strategy works better before investing real money.
You can open a free account clicking on the image below.
Trading Commodities with XTB
Xtb is the broker that offers the best experience for investing in commodities, in fact you will find a wide choice of commodities such as metals, agricultural products and those related to energy.
With this Broker you can choose between two platforms such as metatrader 4 and the x-station, this is a great merit that few brokers can boast!
You will find a wide choice of commodities:
- soy
- cocoa
- Gold
- Silver
- Wheat
- coffee
- corn
- Copper
- Cotton
- nat gas
- Oil
- nichel
- Platinum
- Sugar
- Tnote
- Zinc
Xtb is a very competitive international broker. In addition to the commodities market, you will be able to invest in the Forex market, stocks, indices and cryptocurrencies.
Also the section dedicated to training has proved to be complete on various levels with technical analysis and webinar trading strategies to stay up to date.
The section is accessible to investors with every level of experience.
Trading Commodities with Markets.com
Markets.com is a popular broker for the wide variety of proposed markets. It offers the possibility of trading in CFDs on 15 commodities:
- Gold
- Crude oil
- Natural gas
- Brent oil
- Wheat
- Copper
- Heating oil
- Silver
with a maximum leverage of 1: 200 and through the MT4 or Markets Trader platform, it also offers trading and 24/5 support. Markets.com is the right choice for traders who desire to invest in many assets.
Trading Commodities with IG Markets
IG Markets.com is the best choice for professional and advanced level investors. It is among the largest brokers in the world and offers the possibility to trade soft commodities, metals and energy for a total of almost 50 raw materials.
IG Markets delivers different types of platforms including the MT4 and the advanced L2 Dealer.
Furthermore, unlike the classic futures contracts on commodities, it offers a product with no fixed maturity, which permits you to benefit from low spreads, continuous charts and no interest rate rollover.
The supply of IG on raw materials includes spreads starting from 0.3 points and convenient margins.
Trading Commodities with Plus500
One of the most popular Brokers appreciated by the Traders is plus500.com , its very intuitive interface makes it easy to use even for a beginner.
On plus500 you will find a wide range of commodities with which to operate
• Silver
• Gasoline
• Live cattle
• Cocoa
• Coffee
• Cotton
• Natural gas
• Heating oil
• Grain
• Corn
• Gold
• Palladio
•Petroleum
• Brent oil
• Platinum
• Copper
• Soy
• Sugar
As you can see, with Plus500 you can operate on practically all the main commodities. The Plus500 account is completely free and does not include the payment of commissions or fixed costs.
Trading Commodities with 24option
24option.com is one of the most loved brokers by beginners. In fact, there were many traders who started trading with commodities thanks to 24option. Why?
In addition to the userfriendly interface, the platform provides its customers with its trading experts who will follow for free anyone who asked for a consultation.
Therefore the user is not left alone to face the markets but can rely on an expert who will guide him professionally and safely.
Furthermore the broker provides a classic introductory guide to trading where you will find all the principles and tricks to operate safely.
Unlike the Brokers illustrated above 24option also provides a free trading signals service.
With 24option it is possible to trade the following commodities:
• Silver
• Aluminum
• Zinc
•Gold
Cocoa
• grain
• Corn
•Coffee
• Palladio
• Cotton
•Sugar
•Natural gas
• Oil
• Platinum
• Copper
• Oranges
•Petroleum
Soy
Commodities Trading Conclusion
Whether you are an experienced trader or a beginner, commodity trading is an excellent way to profit.
The commodities market is large and offers numerous opportunities to grow your portfolio, so I invite you to deepen your knowledge and visit my site at least once a week to keep up with the markets .
In case you are a beginner I strongly suggest you start with copytrading, you can start earning immediately and learn by comparing yourself with other traders. Find my free and complete guide to copytrading HERE.
Feel free to leave a comment below!
In case you have questions contact me at acetrader@forex-expert.net . I will personally replay asap!