The commodity trading world emerged with the establishment of the Chicago Board of Trade in 1848. Now it is one of the most popular types of markets for trading.
The rise of the commodity market will continue, mostly because of the Chinese demand. Oil, natural gas, coal, iron ore, copper, aluminum, nickel, precious metals will see their prices rise again and again. By investing in these, investors (from individuals to large banks) can make money by commodity trading and associated securities. They can also benefit from fluctuations in prices.
In this article, we give you a simple glimpse into the complex world of commodity investing today.
Commodity trading: energy products
NYMEX, which stands for New-York Mercantile Exchange is an exchange market specializing in commodity trading in the energy and metals sector. In the past, this financial center was known as the Butter and Cheese Exchange of New York. Today it is the largest derivative commodity market in the world.
Trading oil
Statistics regarding oil deposits and their long-term depletion are to be taken into account for your long positions in oil. At the same time, global warming should lead to lower consumption.
Keep your eye keen on geopolitical factors: the various conflicts and agreements between consumer and producer countries strongly influence short-term prices. Inventory levels, published in particular by the United States, also have a strong impact on oil prices.
Trading natural gas
Global energy needs depend on the economic health of households and industry. The phenomena of growth and industrial recession have a strong upward and downward influence on gas prices. Oil prices also have a powerful influence on gas prices. The more black gold prices rise, the more gas prices appreciate. Gas is also correlated with coal but to a lesser extent.
The value of the US dollar against other major currencies also affects natural gas prices, since gas is quoted in that currency. When dollar prices fall, it often causes gas prices to rise.
Commodity trading: Precious metals
Precious metals are excellent assets for individual investors since they have many advantages and allow good diversification of the investments made. Besides gold and silver, there is platinum. Little known to the general public, this precious metal nevertheless generates billions of profits around the world every year.
If you aim to investing platinum, keep a close eye on South Africa and Russia, which are currently the leading producers of platinum and which alone represent more than 90% of world production. This concentration of supply causes the significant volatility of this asset. Therefore, we know that the level of production in these two countries will have a very strong impact on its price.
Platinum is a rare raw material whose production is much lower than that of other precious metals such as gold. Platinum reserves are even less important than other commodities, which can lead, in the long term, to a risk of shortage and, therefore, a surge in prices.
Buying and trading gold on the stock market
Gold has always been a safe and preferred investment for many retail traders. But how do you buy gold on the stock market today?
To maximize your chances of accurately predicting the price of gold and its future trends, you can use technical analysis, especially if you are trading with a short-term investment strategy. This asset is particularly volatile.
It is also interesting to follow some fundamental indicators regarding commodity trading, such as the US dollar rate against other currencies, which will make buying or selling gold by countries with other currencies more or less interesting. So keep an eye on the Forex market.
Finally, the price of gold can be influenced by production, which is increasingly limited by political decisions concerning imports and exports of this precious metal.
Commodity trading: Agricultural products
Agricultural commodities are increasingly popular thanks to their special place in the economy. These commodities are the subject of strong speculation because production capacities weaken over time, while demand explodes.
Trading coffee
The volumes exported and imported are of paramount importance and represent the first global indicator. Take into account the particular climatic conditions which can affect the producing countries. Big upheavals or natural disasters can indeed cause prices to skyrocket quickly.
Global production can also allow you to anticipate higher or lower demand and production.
Trading sugar
Sugar has long been one of the most popular agricultural commodities for traders around the world due to its high volatility. But to detect future upward or downward trends in this asset, it is essential to know how to carry out a precise analysis of its price. Climatic conditions, especially in the largest producing countries, also have a significant impact on sugar prices.
Finally, oil prices are prime indicators since they are indirectly correlated with the use of sugar to manufacture biofuels. This correlation is positive in the sense that rising prices for one raise prices for the other.
Final thoughts
To stay ahead of the commodity trading, follow news and analysis where experts analyze commodity price developments. Before entering a market, calculate your risk-reward ratio. Also, follow the economic calendar for the dates and times of notable data releases. If you want to become a decent trader, you should always update your knowledge and skills.