Trading On Commodities
Trading on commodities through an online brokerage such as ours is conducted by way of CFDs (Contract For Difference). Traders issue an order to enter into a CFD for a certain commodity at the value of this commodity at the time, plus a few pips.
The few pip differences between the asking price and bid price constitutes the whole of the commission paid while trading on commodities making them financial products which may yield profits even when positions are opened and closed rapidly.
If the price of the commodity traded on rises the trader can then give an order to sell, completing the CFD trade and making a profit equal to the rise in price multiplied by the sum they had invested.
For instance, a trader may enter into a CFD for a 1000 U.S dollar investment in coal when the price of coal is 38.61 U.S dollars per tonne. If they then end the trade, giving the order to sell, when the price of coal is 39.48 they've made a 1.026% profit, they will receive 1010.26 U.S dollars, making 10.26 U.S dollars. By using leverage, such profits may be multiplied by factors of 10, 100 and even more.
Trading On Different Kinds of Commodities
Leading online brokers offer traders the opportunity to trade on commodities widely traded worldwide. Among such commodities are:
- Precious metals. e.g. gold, silver, copper, bronze, etc.
- Crops such as corn, wheat, rice, cotton and others.
- Livestock and meat products (cattle, sheep, poultry, pork bellies, etc.)
- Fossil fuels such as coal, liquid petroleum gas (LPG) and oil.
Commodities Trading Strategies
As with any market, trading on commodities calls for using some type of trading strategy designed to maximize profits and minimize risk. Among the most commonly used commodity trading strategies are:
- Seasonal Trading - The value of many commodities follows a yearly pattern, rising at certain times and falling at others. The peaks and lows coincide with changes in supply and demand. Investing in a commodity during a season when its value tends to be low and then selling once the price rises as expected will yield a profit.
- Range Trading - A trader following this strategy will study the behavior of a certain commodity and once identifying a short-term pattern will begin opening and closing trading positions in a way which yields profits.
- Breakthrough Trading - Sometimes a certain commodity's price may break a barrier and rise steeply to a whole new plane. A trader able to forecast such an event may invest in such a commodity prior to such a leap.
Profiting from Trading on Commodities
Trading commodities offers good potential for profits, this is thanks to several advantages such as:
- Leverage options allow using limited funds to make large volume trades thus raking in profits far greater than otherwise possible.
- Commodities tend to maintain their value even during economic slumps (international or local recessions for instance or inflation in weak economies). This makes trading on commodities a good way to diversify an investment portfolio so that it becomes more solid.
Using our advanced trading platform, you too can trade on some of the world's leading commodities and tap into the profits such trading can generate. Open a trading account with us now and begin building a highly profitable trading portfolio.