How Are Commodities Traded In Simple Term
The lookout for how are commodities Traded is as old as the financial market itself. Perhaps commodities trading is even older than the financial market. The first commodities trading exchange dates back to 1530 in Amsterdam.
Today, you can trade commodities from the comfort of your home or office with a click of the mouse. Commodities trading is basically the buy and sell of various commodities such as oil and gas, cocoa, coffee, sugar, wheat, and metals like gold and silver.
In this guide, we will dissect everything you need to know about commodities trading - from the types of commodities, why trade commodities, to how are commodities traded, and the most actively traded commodities on the market.
What are Commodities?
Commodity futures contracts of CFDs on Commodities can be considered as financial instruments. Most commodities come from the earth, and they possess uniform quality. They are usually produced in large quantities by different producers.
Examples include oil, precious metals, corn, cotton, gas, wheat, oranges, and uranium. Generally, commodities are the raw materials needed by industries to produce "finished" foods that we consume today.
Types of Commodities
Commodities are grouped into three classes. Below are the three classes of commodities:
- Agricultural: Examples of agricultural commodities are coffee, corn, sugar, soybeans, bread, cakes, wheat and cookies. These commodities are used to produce most things that we eat.
- Energy: Examples of Energy commodities are crude oil used for transportation and plastic production, gasoline which powers cars and light-duty trucks, as well as natural gas used for generating electricity.
- Metals: Example of metals are gold and silver used in making jewelry, copper used to produce electrical wires.
Why Trade Commodities?
- While commodities do not pay dividends like stocks, they can protect you against inflation. Commodities prices tend to skyrocket the moment economies experience inflation.
- The startup cost of trading commodities is very minimal. The requirements are a laptop or a smartphone, a strong internet connection, and as little as 215 Euros.
- With a mobile app, you can buy or sell any commodity of your choice right from your phone.
How Are Commodities Traded with CFDs?
Curious about trading CFDs on commodities? Then follow the steps below:
Step 1: Choose Your Market
Before you start trading commodities, the first thing expected of you is to choose your market, preferably the commodity you understand better. There are different commodities markets, including Gold, Crude Oil Brent, and Natural. So, choose the market you wish to trade before moving to the next step.
Step 2: Decide To Buy Or Sell
The next step is to decide to buy or sell your preferred commodities. From the market indicators, if you think prices will rise, then place a buy order or go long. Similarly, if you think prices will decline, you may go for a sell order or go short.
Step 3: Enter a trade size
Next is to decide the number of units you want to trade. Depending on the instrument you have chosen to trade, one unit can vary when trading CFDs.
Step 4: Try to Manage your risk
The next step if you choose so, is to put measures in place to help you mitigate the inherent risks on the commodity market. Here is how you can try to manage your risk - you have the option to select and implement a stop-loss from the list of stop-loss orders. The stop-loss will shut you out in case the market goes south under normal market conditions.
Step 5: Monitor Your Position
Monitor your open trade positions after placing your trade to follow up on your profit or losses, including any take profit orders or stop orders. This will help to know whether you are making progress or not.
Step 6: Close Your position
This is the last step. In case your open positions do not automatically close out due to take profit or stop orders being triggered when you are ready, you can close your trade at any time you choose.
Popular Commodities to Trade
As thebalance.com states, in no particular order, the following are the most actively traded commodities:
- Gold trading
- Natural Gas
- Brent Crude Oil
- WTI Crude Oil
About R1Investing and advantages of trading commodities with us
R1Investing is a leading online broker with thousands of traders on our membership base. Our mission is to create a community of investors where each investor will have better tools to make a trading decision with confidence. Here is why today's investor prefers our trading platform over others:
- Technical Support: Our Technical support team, dedicated to assisting you with the use of our platform and regular news updates, so you can make an informed decision.
- Regulated: R1Investing is an regulated online broker regulated by CySEC along with the segregated accounts to save investors' funds. We have cutting edge measures on the ground to protect our investors' funds from the peeking eyes of fraudsters.
- Trading Tools: At R1Investing, we have a range of trading tools to help you win all your trading positions. Whether you want to open a long or short trade position, we have trading tools that would help you achieve that with ease.
- CFD: Aside from CFDs on commodities trading, if you want to trade CFDs on other tradeable assets like precious metals, we have got you covered. We have more than 350 CFDs tradeable assets to choose from, including CFDs on cryptocurrencies.
- Depositing/Withdrawal Methods: When it comes to the ease of funding your trading account and withdrawing, R1Investing is at the center of it. We support several deposit/withdrawal methods. Whether you are comfortable using Credit/Debit card, Visa, internet banking or wire transfer, you will enjoy the ease of deposit/withdrawal on our platform.
How Are CFDs on Commodities Traded on our Platform?
Trading CFDs on commodities on our platform is simple and hassle-free. Our trading platform is user-friendly and equipped with features that will easily let you trade on the commodity market.
If you are passionate about trading CFDs on commodities on our platform, here is how to go about it:
- Select your preferred language and click on "open a trading account."
- Fill the registration form with the right information.
- Submit your application for processing
- You will be informed that your trading account has been created.
- Proceed to make your initial deposit. We support several deposit methods. Choose the funding or deposit method that is convenient for you.
- Once you are done funding your trading account, you will see the deposited amount reflecting in your balance.
- Navigate to your dashboard and start trading Commodities via CFDs. You will see a list of commodities listed on our site. Choose the one you understand better.
- Start trading the CFDs on the commodity of your choice.
- If all of the above processes are confusing, you can reach out to our technical support desk for immediate assistance.
Frequently Asked Questions
What are the best commodities to trade?
As an investor, you should only trade a commodity you understand better so that you won't lose your trading capital. You can acquire knowledge about any commodity from researching about the commodity itself.
Benefits of trading commodities with CFDs?
Before the introduction of CFDs, the traditional way of trading commodities was the use of futures contracts. The problem with using futures contracts was that not many traders have futures trading accounts, plus, the trading capital was huge and must be made available upfront. However, these problems can be completely avoided when you trade commodities with CFDs. With CFDs, liquidity is not a problem, and you can start trading with a little capital due to leverage. Leverage can increase potential profits but equally increase losses.
Is it possible to trade commodities online?
Of course, in the 21st century, commodities are now traded online. All that you need is a trading account with an online broker, a trading device, a strong internet connection, and a good trading knowledge.
Commodities can be an excellent addition to your trading. Aside from potential earning returns from commodities trading if the market goes your direction, it is also a way of diversifying your investment to mitigate the risks of losing your capital. With the right knowledge and trading tools, you can start exploring the commodity market.
Thankfully, if you are trading with R1Investing, we have all the tools to get you started. Importantly, before you start to trade CFDs on commodities with a live account, ensure you understand the commodity you are pushing for. Plus, use a demo account to feel in real-time how the market operates. You can access our demo account to achieve this.
In summary, this article has covered the following crucial areas of commodities trading:
- What are commodities
- Types of commodities
- Advantages of trading commodities
- How are commodities traded?
- Top commodities to trade
- Why trade CFDs on commodities with R1Investing?
- How to trade CFDs on commodities on our platform
The information above is for education purposes only and cannot be considered as investment advice. Past performance is not reliable indicator of future results.