FXOpen: Commodity trading for the experts
Commodity trading dates back centuries, to an era long before the development of the financial markets. It involves the exchange of different assets based on the price of a physical commodity – typically metals and energy. The commodity market is one of high risk and high reward, where a more specialised level of knowledge is required.
Advantages of commodity trading with FXOpen
One platform with multiple instruments and markets
With us as your broker, you can use one platform for commodity trading (metals and energy only) as well as indices, shares, forex and cryptocurrency CFDs.
Trade commodities in confidence
We have a duty to all our clients to hold ourselves to the highest standards.
to your individual trading style and strategies, meaning you are in complete control of your commodity trading.
Access to automated trading
You have the choice to download and use ready-made scripts and expert advisors or create a custom indicator or script, based on your very own commodity trading strategy.
via the desktop, web-based or mobile version of the MT4 trading platform. The web-based version is particularly useful for Apple Mac users, where a direct download is not available.
Access to a wide range of analysis
50+ built-in indicators and graphic tools for technical analysis, quotes history centre, strategy tester and news, all designed to help you increase your commodity trading knowledge.
The different methods of commodity trading
Most commodity traders operate via a futures exchange, which is where an agreement is reached to buy or sell an asset at a predetermined price at a certain time in the future. When that futures contract expires, the buyer is obligated to pay the commodity price that was agreed.
If, in the intervening period, the value of the asset has risen above the agreed price, the buyer stands to make a profit. Conversely, if the market price has fallen below that benchmark, they will suffer a loss.
An alternative is for traders to purchase stocks in businesses that are associated with these commodities – such as mining companies or oil refineries. Adopting this approach means commodity traders are not just taking a risk on the value of that particular product, but on the performance of the company itself.
Of course, commodity prices are likely to impact an organisation’s share price, but it’s not the only contributing factor as businesses can still make a profit even if the commodity itself suffers a drop in value.
What are the most traded commodities?
The commodity market can typically be divided into four main categories: metals and energies, both of which you can trade with FXOpen, and livestock and agriculture.
Metals including gold, silver, copper or platinum
Some precious metals such as gold have a conveyable value, which can make them an attractive proposition for commodity traders.
Energy sources such as crude oil and natural gas
This particular commodity market can be impacted by a number of factors including production rates and the development of renewable energy sources.
Livestock including cows, pigs and sheep
This is a commodity which can be affected by economic inflation and its impact on food prices, weather conditions, the spread of disease and societal attitudes towards eating meat.
Agriculture products such as corn, sugar and wheat
It was this type of commodity that formed the backbone of the first markets in the 1800s, when farmers would lock in prices for their produce at various times of the year.
The risks and rewards of the commodity market
As with all types of trading, there are no guarantees when it comes to commodities. It’s important that traders understand and appreciate both sides of the coin before they enter the commodity market. They should ensure they’ve done the necessary research and analysis prior to taking up any positions.
The commodity market is particularly high risk and high reward, perhaps even more so than most other markets. Commodity traders can take steps to mitigate those risks, but it’s a market that requires a good deal of specialised knowledge in order to be navigated successfully.
Open a commodity trading account
You can trade metals and energy markets with tight spreads and low commissions with FXOpen.
What factors affect commodity prices?
As with almost any market, supply and demand has
a huge impact on the commodity market. For
example, if oil production levels in
traditionally prolific areas such as the Middle
East were to drop, those commodity prices would
be likely to rise.
Commodity trading is widely seen as higher risk because the market can also be affected by circumstances outside of traders’ control. For example, major political events such as the US elections have historically had a significant impact on the price of precious metals – especially gold – so that is one commodity market that traders will monitor closely when candidates embark on their campaigns.
What is a commodity broker?
A commodity broker acts as a link between the trader and the market, offering quotes via its liquidity providers. Its trading platform reflects the best possible market conditions and offers the capability to execute trades. A commodity broker will charge a commission on every deal and its interests are aligned with that of the commodity trader.
How to define success for a commodity trader
Success might look very different to one
commodity trader than it does to another. It’s
important you enter the commodity market with a
clear idea of what you want to achieve and how
you’re going to achieve it.
Setting objectives will help to give your trading strategy a framework and it will allow you to manage your expectations as you progress. Remember, commodity trading is high risk and high reward, so you need to be prepared for any losses and have a plan in place that will help you recover from them. Even the most experienced commodity traders won’t get it right every time, but it’s important that you have faith in your research and be clear in your mind as to how you define success.