Commodities are the raw materials which stay in the foundation of manufacturing and production. They are the basic blocks of the international economy. These natural resources are traded on specific exchanges all over the globe. There are two main types of commodities- soft and hard. Soft are mainly agriculture and hard commodities include metals, energy resources.
Commodities are mostly traded on specialized exchanges for particular markets. Also, commodities are traded as future contracts.So pairs agree on a future price and date of the asset. So investors are able to trade on commodities without being the owner of a certain asset.
Key benefits of trading commodities
Trade influential markets
Gain access to popular metals, energy and agricultural
Improve your trading potential
Commodities enable you to speculate in both rising and falling markets
Broaden your trading opportunities
Speculate in new markets and hedge against inflation
Benefit from zero commissions
Trade commodities with no commissions and enjoy margins from just 1%
Various factors can affect the prices of commodities and contribute to their fluctuation significantly.
Supply and Demand – If supply and demand balance out, prices should stay the same. However, anytime the market thinks the supply will be lower due to weather or production cuts, prices tend to go higher, and vice versa; higher supplies tent to lead to lower prices.
Stock and Inventories – Production of these commodity prices can be affected by the following; weather, crop diseases, production issues with staff, political and economic environments which form additional charges such as taxes, trade laws, subsides from governments etc.
Currency Strength – Connections between some of the worlds most traded commodities and Forex pairs are common. For example, the Canadian dollar (CAD) is connected to oil trading prices since Canada is a large exporter of oil. If you are aware of these common connections, then monitoring them and trading at the right time are important to making the right decisions in successful trading. It should be noted that most commodities are priced in US dollars, and thus it would be wise to monitor the dollar index in order to better forecast the price dynamics. We allow forex trading from the same trading platform, so you can use these correlations to your advantage.
Inflation – When there is inflation, the price of a commodity usually changes accordingly.