Connect Financial gives you quick access to a variety of global markets, including energy commodities and minerals like oil, gold, and silver, among others.
Commodities are one of the key traded assets and are one of the pillars of the global trading system. Commodity trading entails investing in energy and metals such as gold, silver, and other precious metals.
You can start trading commodities with Connect Financial through contracts for difference, which allows you to guess on whether the value has climbed or dropped.
Of course, a variety of events and variables influence and change commodity prices, including political events, climate circumstances,
international wars, supply and demand, and many others. Commodities are a popular choice for newbies to the forex market or seasoned traders who like to diversify their investment portfolios,
and this volatility in the markets provides fantastic trading chances.
what are the most traded commodities?
When trading commodities, liquidity should be the number one factor to consider. This is because the liquidity of a commodity is linked to the ease with which a trader can Buy and Sell the commodity.
To put it simply, liquidity is a measure of how many buyers and sellers are present and whether transactions can take place easily.
When there is a significant level of trading activity and where there is both high supply and demand the relevant market would be very liquid. A liquid market is generally associated with less risk,
as there is usually someone else willing to take the other side of a position. High liquidity also means less probability of slippage for the trader.
Slippage is defined as the difference between the price quoted to the trader and the actual price at which the trade is executed.
Slippage can work both in your favour and against you – for example, trading in commodities with low liquidity could potentially lead to greater losses.
In addition, commodities with low liquidity often face sharp price swings. As such, if you are looking to trade the commodity market, you should try to focus on commodities with high liquidity.
Some of these highly liquid commodities include energies such as Oil, Natural Gas, precious metals such as Gold and Silver and agricultural products such as Cotton, Soybeans and Wheat (i.e., commodities with high trading volumes).
One way to manage liquidity risk is through the use of guaranteed stops, a type of stop-loss that ensures your position is closed at your pre-selected price level.
What is the process of trading commodities?
Commodities are exchanged in the forex market in two ways: as instant trades or as futures contracts,
in which the buyer receives a predetermined quantity of the commodity at a predetermined price on a predetermined date.
Because many commodity producers, particularly traditional commodities like grain, tolerate negative price movements,
most buyers and sellers of commodities deal in futures contracts.
Most Actively Traded Commodities
Below is a list of the most actively traded commodities taken from data compiled by the Futures Industry Association (FIA).
WTI Crude Oil
Brent Crude Oil
Natural Gas
Soybeans
Corn
Gold
Copper
Silver
West Texas Intermediate (WTI) Crude Oil
West Texas Intermediate (WTI), also known as Texas light sweet (ticker: CL), is a grade of crude oil used as a benchmark in oil pricing. This grade is described as Medium crude oil because of its relatively low density,
and sweet because of its low sulfur content. It is the underlying commodity of New York Mercantile Exchange’s oil futures contracts.
Brent Crude Oil
Brent Crude (ticker: EB) is extracted from the North Sea and is a major trading classification of sweet light crude oil that serves as a benchmark price for purchases of oil worldwide.
This grade is described as light because of its relatively low density, and sweet because of its low sulphur content.
Soybeans
Soybeans (ticker: ZS) are one of the most active and popular agriculture commodities. According to the US Department of Agriculture (USDA),
the US is the leading producer and exporter of soybeans, mainly exporting them to China, the EU, Japan, Mexico and Taiwan.
Soybeans account for 90% of all oilseed production in the US which, in turn, accounted for 44% of the world’s Soybean export in 2010 and 35% of the world’s Soybean production in 2010.
Natural Gas
Natural Gas (ticker: NG) is a non-renewable hydrocarbon used as a source of energy for heating, cooking, and electricity generation. It is also used as a fuel for vehicles and as a chemical feedstock in the manufacture of plastics and other commercially important organic chemicals.
Corn
An important food source, Corn (ticker: ZC) is also used in the production of animal feed and ethanol.
The major producers of corn around the world are Argentina, Brazil, China and the US. As corn is an agricultural product, its supply can be adversely affected by bad weather.
Another factor which can affect the price of corn is the number of farming subsidies provided by government agencies.
In the US, the production of corn is heavily subsidised in order to provide a strong incentive for farmers to keep growing this crop.
Gold
Throughout recorded history, Gold (ticker: XAU) has been highly sought after for its beauty as well as a storehouse of value.
While the traditional uses of gold have not changed, it nowadays is also regarded as a key component in the manufacture of electronics.
Copper
Like Gold, Copper (ticker: HG) is widely used in the electronics industry in light of it being a good conductor of electricity. Due to its wide usage in the manufacturing industry, the price of copper can fluctuate according to economic output.
The key producers of this metal are Chile, China and Peru.
Silver
Similar to Gold, Silver (ticker: XAG) is highly sought after as a precious metal. However, silver is also widely used in the manufacture of solar panels and photographic films.
Although Silver is also regarded as a precious metal, most people prefer gold as it is a more reliable store of value.
Trading Popular Commodities
It should be noted that each commodity is different and so their prices are affected by different factors. For example, gold and silver prices can be affected by increased or decreased demand for jewellery and by changes in the demand for a store of value.
During economic uncertainty, demand for gold or gold-related investments can increase as a means for investors to protect their wealth.
It is therefore critical that you conduct a thorough analysis before deciding to trade commodities.
Connect Financials offers CFD trading on the world’s leading commodities. Its user-friendly, yet advanced online CFD platform includes a free demo account, a wide variety of educational resources and trading tools that are made available to new and experienced traders alike.
The company’s spreads are among the lowest in the industry and the intuitive platform is designed for ease of use, without compromising on in-depth analytical insights and sophisticated trading options.
You can practice your strategies using the Free Connect Financials Demo Account and get a feel for trading the vast array of different commodity instruments before committing real money.
This article contains general information which doesn’t take into account your personal circumstances.
