Commodity Trading Guide - The Full Guide For 2022
What Are Commodities and What is Commodity Trading?
Have you ever wondered what commodities are? Have you ever thought about commodity trading and how to get involved in it?
Well let us start by saying that the trading transaction is the process of either a buyer accepting the offered price or a seller taking the bid price. Trading in commodities works similarly to this as it also involves the coming together of a buyer and a seller to make a trade.
Commodities are raw materials or products such as coffee or sugar, which are vital assets of the world, that can be traded. Experienced traders know that diversifying their portfolio will allow for the most significant monetary gains, which is why many turn to commodity stocks. Those who are interested in commodity stocks can get involved by investing in the physical commodity itself or purchasing shares from within the commodity company.
Before considering commodities, one should consider the risks and benefits. Nothing comes without risks in the business world and, therefore, exploring the risks can assist you in making the correct and most beneficial decisions in the commodity market to ensure the best outcomes. There are a couple of great benefits associated with commodity stocks.One of the main benefits is the increased demand for them during times of high inflation. Commodity prices often rise when the USD declines. The demand for commodities trading is strong, and once again, it is a way to diversify one’s portfolio.
If this has sparked your interest and has caught your eye, then you may be wondering now more about the commodity market and how to trade commodities online. The purpose of this article is to review a platform called “Commodities Trading”. This is a platform embedded within IG. This platform was founded in 1974, it is involved in 17,000 + markets, and serves over 239,000 users throughout the world. In addition to hosting commodity trading, the platform also hosts many other trading opportunities such as Forex and Cryptocurrency.
Forex trading involves the trading in currencies from different countries against one another and Cryptocurrency trading involves taking a financial position on the price direction of single cryptocurrencies against another crypto. For example the dollar.
Of course, there are also risks associated with commodities trading as all stocks come with some form of risk and it is important that all commodity traders should take on these risks at some point to make the most out of the commodity market. Remember that in a lot of cases, high risk could result in high reward.
However, in commodity trading, the commodity broker should always explore the risks and the intensity of each risk thoroughly. One of the most significant risks is volatility, which is much higher than other types of investments. Another risk is that the trading is speculative, therefore it can be challenging to make predictions and plan trading outcomes. This may also affect the commodity futures or commodity futures trading within the commodity market. Commodity futures contracts are agreements to buy or sell a specified commodity at a future date.
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The Different types of Commodities:
In commodity trading there are different types of commodities. They are often categorized into two groups being, hard commodities and soft commodities. Hard commodities are the natural resources that are to be mined or extracted whereas soft commodities are those known to be agricultural products and livestock.
Within the commodity market the agricultural products include crops like coffee, corn, wheat, soybeans, cotton, and lumber. The other types of commodities, livestock and meat, include live cattle, beef, pork bellies, and milk. In the commodity exchange there are also the energy products as well as metals which are known to be hard commodities.
How To Trade Commodities and the Fees Involved:
The creation of an IG trading account is free. There are also minimal fees associated with executing trades which is what makes IG such an attractive broker option within the commodity market. When users buy at a specific price and sell at a different price, the difference between these two units is called a spread. IG makes the majority of its money through spreads. Fees are extracted from these spreads. Users may also be charged if they leave trades in the market overnight or if they are inactive for an extended period of time. There are also fees associated with contracts.
For example, the value of a contract for spot gold is $100 USD, which results in a spread of .3; the margin per contract is .5%. IG does an excellent job of breaking up all of its charges on its main webpage. This is where you will find all the necessary details so follow the link and explore.
How To Open An Account
Opening an account is simple and easy with IG and you will have the option to create a demo account first. You may also want to go right ahead into the live version of the account which is also an option if you feel ready to head on into the big leagues.
We do, however, always recommend taking advantage of the demo account as it is free and is great practice. It is offered to assist you in getting started in an easier way so that you can go forth with all the necessary knowledge. When you go to the demo account creation page, you will be asked to come up with a unique username, password and provide your name, country of residence, phone number, and email address. IG is available in over 100 countries, so finding your location on the list should not be an issue.
Once you have completed signing up for the demo account, you will be granted access to the platform with $20,000 in virtual funds. You’ll also have access to educational content, such as commodity tips, commodity trading tips or commodity market tips, to help you refine your strategy and familiarize yourself with commodities trading. With this commodity trading educational content, you should be just about set with the knowledge to go forth with your commodity trading online. Allow this to be your commodity trading guide.
The demo account will be available as long as you have virtual funds in the account. Once those have been used up, you will no longer have access to that account and will be transitioned to a live account.
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What Happens Next - How to Trade Commodities
With several commodities and options to choose from, you may be wondering by now how to proceed when you enter the live account. You can choose your position in three easy steps:
- Choose a commodity such as gold or oil, or you can select commodity-linked stocks or ETFs.
- Choose whether to go long or short.
- Start trading!
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Consider the categories of commodities, commodity stocks, or commodity ETFs. ETF is short for an exchange traded fund. Commodity ETFs are investment instruments that hold assets. It is important to consider what category commodities fall into for trading purposes. Commodity stocks are indirect commodity tradings because you would be buying and selling shares of a commodity manufacturer.
If you are considering commodity stocks, take a close note of the relationship between the stock and commodity. In some instances, the stock price does not run parallel to the commodity price, therefore it is important to ensure that you have an understanding of that relationship.
Once you have determined how you will trade commodities, you will then have to consider what makes the price of the commodity move. There are five factors that can cause shifts in commodity prices. These include competition, politics, macroeconomics, seasonality, as well as weather.
All of this information is presented on the live stream within the IG platform, but it is still essential to have a thorough understanding of how prices shift so that you can more accurately predict movements and ensure your commodity futures. Some factors that can cause shifts in commodity value are predictable, such as seasonality. Even so, there are some things that are unpredictable, such as how the weather will be, but it is still important to have an understanding of these relationships.
Another vital aspect to take into consideration for novice commodities traders is to understand how commodity trading works. There are five trading methods, which include the following:
- Trading commodity futures,
- Trading commodity spot prices,
- Trading commodity options,
- And investing in stocks and ETFs.
When trading commodity futures, the trader will have a contract that is set to exchange an asset for a fixed price in the upcoming future and this method is mostly a prediction game. With commodity futures the holder has an obligation to act unless taking it upon themselves to undo the commodity futures contract. Trading commodity spot prices reflect exactly what the commodity is worth at the moment, and so it is more of an immediate trading execution.
The execution of the trade involves the completion of selling or buying commodities. The trade commodities options provide traders with the opportunity to trade at a set price on a set date, but traders are not obligated to execute the trade, which is what makes it the opposite of contract trading. Trading in stocks and ETFs has the ability to allow traders to choose whether they wish to go long or short with their trade. There is no preferred way of trading as all of these options are valid and can result in gains. When choosing how to trade commodities, consider the level of your comfort as well as familiarity.
The stock industry includes a lot of technical jargon, and therefore going with a strategy that is full of terminology that you are unfamiliar with is not always the best way to go. Moreover, you can pick and choose one or even multiple trading options, so that you are not committed to only a single option.
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Deposit & Withdrawal
Just like with all trading platforms, you will be required to make a deposit because that is the way to initiate trades. The minimum deposit requirement is $300 USD and is the equivalent in other currencies. The maximum deposit is $99,999, and this must be made with a debit card. Otherwise, the maximum deposit is $50,000 by credit card. We understand that a $300 minimum deposit can seem daunting. However, IG is a reputable broker, and they are committed to ensuring their users’ success.
Furthermore, you do not need to execute a single trade worth $300 immediately. You can use the $300 to execute multiple trades on various commodities or trading options. In fact, we do recommend that you split the $300 up to execute numerous trades as that method will give you much better odds at success.
Commodities trading is housed within the broker IG, which is a well-known and trust broker. IG allows for online commodities trading, which enables traders to execute transactions from the comfort of their homes. There are several reasons one should consider this online platform for stock market commodity trading:
- The platform is extensive and offers 35 different commodities.
- Capital is secure in order to minimize risk.
- There are live feeds for users to get up-to-date information on the market.
- CFDs are available for short-term profits.
- The platform offers low spreads for traders to get the best commodity prices.
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In addition to the multiple benefits, IG also has several options for traders. IG allows for several markets to be traded within, such as spot prices, options contracts, shares, and ETFs. Traders can go long or short on the market prices as well as having the fees be minimal so much so that CFDs are subject to a commission, and all other commodity markets fees are collected via the spread. Finally, the platform is available via mobile app or available on the web, which allows more flexibility and control in your trading journey.
As mentioned previously, IG includes a web-based platform and a mobile-based platform that allows for trading anywhere. IG also includes MetaTrader4, a platform with 24/6 support and to be your commodity advisor and leading technology for commodities trading. MT4 has numerous state-of-the-art features such as thousands of market indicators, automatic trading, custom charts, and it has a software feel providing seamless usability. MT4 is available within the demo account, so users are welcome to familiarize themselves with the state-of-the-art platform before executing live trades.
Commodity Trading Tips
A great tip is to use the additional feature included within IQ, knock-out trading. It provides novice users with minimal risk trading. Knock-outs allow users to set their target gain and will automatically close out the trade when that target is met. The knock-out trading feature enables users to hold their commodities’ value falls to prevent significant risk.
With all of the exciting mentioned features, track record, and customer service reports, we fully support IG as a platform for executing commodity trades.We find it efficient and a great way to get involved in commodity trading. The platform consists of a licensed broker and is dedicated to its users’ success. We highly recommend taking a look at their website as there is much more intriguing information than what we have covered in this article alone.
If you require more startup information about commodities as a whole, it is highly recommended that you consider investing in Commodities for Dummies.
We wish you the best of luck and of course, as always, happy trading, friends!
Even though investment and Commodity Trading can be challenging, we hope that the info in this article help set you up for more financial success.