From the outside, commodity markets appear complex; but did you know that gold, oil, silver and platinum are amongst the most popularly traded financial assets in the world? This is perhaps explained by the fact that these markets are easy to analyse. Once you correctly identify the trend of a market, more often than not you will be able to successfully predict the future price movement of the underlying asset.
The challenge is that commodities have a higher level of volatility than the other financial assets like currencies and stocks. For example, oscillations in the price of gold can be 20 times greater than changes in the value of a currency pair like EUR/USD. Consequently, the key to successfully trading with commodities is careful analysis and research.
Commodity trading is not particularly complicated because there are only about forty viable markets to trade. This is in stark contrast with Stock Trading where potential traders have over ten thousand potential assets to sift through.
Trading commodities has never been easier than with our Forex trading platform. Using tools providing short term expiry time from a minimum of 1 min to a maximum of 1 month available on the platform, it is now possible to access the financial market with investment amounts as low as $5. With forex trading, you are also concerned with the direction (and not the magnitude) of the price movement of an underlying asset.
Volatility is a concern when trading commodities. However, this particular characteristic also means that the commodity markets offer more lucrative opportunities for traders. The key is to conduct enough research and analysis on an asset before investing.
The price movement of assets in the commodity market can be studied through technical analysis. This method of forecasting future prices is based on the premise that you can analyse the past to predict the future.
Shares of companies are influenced by several events. Understanding these events and their impact on the value of a stock can inform successful trading decisions.
To understand how supply and demand affects the commodity markets, let’s consider the behavior of oil as a financial asset. If the supply of oil increases but demand remains constant, the price of oil per barrel decreases. Conversely, if more people are using oil but the industry cannot match the demand, the price per barrel increases.
For example, the unceasing production of oil by Saudi Arabia and America in recent times has caused the commodity to decrease in value.
Wars and other conflicts can cut off a country’s access to the materials it needs to function. They create uncertainty about the future availability of commodities and the risk associated with reduced supply can have a significant impact on prices and demand.
When war breaks out near or around shipping ports, the transfer of certain commodities can also be disrupted.
Weather conditions can have a significant impact on the commodity markets because most of the assets transacted are agricultural in nature. For example, a deep freeze in Florida can affect orange crops. When this happened in the past, the price of the commodity experienced a hike.
This has to do with supply and demand. With a high demand and a reduced supply, a commodity is likely increase in value.
Gold is one of the world’s oldest traded commodities. It has a negative correlation with the U.S. dollar; although, this relationship has weakened over the past few years. Gold also exhibits a positive correlation with the Australian dollar and the Swiss Franc. The commodity is traded on the market from 03:00 GMT to 19:00 GMT, Monday through Friday.
Brent Crude is a trading classification of crude oil that serves as a major benchmark price for purchases of oil worldwide. It is extracted from the North Sea and offers excellent opportunities to profit in nearly all market conditions. This is due to its unique standing within the world’s economic and political systems. The commodity is traded Monday to Friday from 03:00 GMT to 19:00 GMT.
It’s a little known fact that silver is generally extracted from copper, gold and zinc ore, rather than mined in its own right. As a result the price of silver is largely determined by the demand for these other metals. The commodity is traded on the market, Monday to Friday, from 03:00 GMT to 19:00 GMT
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