Commodity Trading Overview: Definition, Types, And How To Start

By Author: alexander
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Commodities are goods, raw material or products such as energy, food, metals, copper that people use in daily lives. All these goods are tradable, which means that traders use such types of goods as an exchange medium. Also, individuals and companies use them in their production and manufacturing. This commodity trading guide covers everything you need to know related to this market.

Different types of commodities

Commodities are mainly divided into four broad categories such as:

Metals: Metal usually includes Gold, silver, and platinum and industrial metals such as copper, aluminum, tin, etc.
Agriculture: This category includes agricultural products such as Pulses, Spices, oil, grain, and oilseeds.
Meat and livestock: Cattle, Eggs fall under the category of livestock and meat.
Energy: Energy includes nonrenewable resources such as Crude oil, Brent crude, natural gas, thermal coal.

If we talk about the most traded commodities globally, then the Energy and Metal category will top this list. Having deep knowledge about market fundamentals and knowledge ...
... about commodity types enables a trader to make a calculative decision.

Some commodities are traded most in the market. Have you thought about what is different in them? Why do traders get attracted to these commodities? Four main points decide this:

Liquidity

The trading volume of commodity
Supply and demand factors influencing them
The aggregate price shifts of the commodity

Why is commodity trading popular?

Commodities are excellent financial tools for your trading portfolio. But, what makes them so good and popular among traders? Let's find out.

The value of a commodity comes from factors like demand and supply. These factors are vital in predicting the future value, whether it will surge or decline. Traders decide to buy and sell accordingly.
There are multiple methods to invest your capital in commodities. The most popular and commodity used way is selling and purchasing commodities through CFDs or futures contracts.
In the time of uncertainty and turbulence, there are certain commodities whose value does not change at all. They successfully retain their value. This factor makes them a safer investment. It is the main reason why many traders get attracted to commodity trading.
As an investor, portfolio diversification is important. It helps in mitigating risk to a larger extent. Commodities are an excellent way which can help traders to diversify.
The value of commodities keeps on changing from high to low and low to high. Thus, it provides you good chances to harvest generous gains.

Which factors should you consider when selecting a commodity to trade?

Commodities may generate good returns over investment. They are also good for diversifying the portfolio, but the major question is, how do you decide which are the best commodities to trade? While making the decision, there are several factors you must consider.

Check the liquidity of the commodity: How simple is it to sell and buy the commodity? How low or high is the demand and supply of that particular good? If you purchase this product, are there adequate investors available to take it from you at the value you wish to sell?
Check the related geopolitical conditions: For example, you must consider whether the supply of a commodity is affected by the political issues around or what impacts economic and policy changes will exert on commodity price?
Inspect what the future holds for a commodity: For example, in the case of nonrenewable resources such as coal, the supply will reduce, which will surge the demand and hence, prices. But, it is the fact that they will turn less popular if solar power or green energy sources will surge.
The trading method: You must consider how you wish to sell and buy commodities. Whether you wish to trade them through futures contracts or CFDs will work fine.

How to start commodity trading?

You need a brokerage account to start commodity trading. For this, you simply need to provide some details, followed by a questionnaire uploading documents and deposit. Global TradeATF is the best broker to start with.

The Bottom Line

Commodity trading looks attractive, but it is also risky. There is no benefit of entering the market without prior knowledge. So, it is always better to start with a demo account, which allws you to practice trade before entering the real trading world

Frequently asked questions

What are commodities?

Commodities are goods, raw material or products such as energy, food, metals, copper that people use in daily lives. All these goods are tradable, which means that traders use such types of goods as an exchange medium.

What does the liquidity in commodity trading reflect?

How simple is it to sell and buy the commodity? How low or high is the demand and supply of that particular good? If you purchase this product, are there adequate investors available to take it from you at the value you wish to sell?

How to start commodity trading?

You need a brokerage account to start commodity trading. For this, you simply need to provide some details, followed by a questionnaire uploading documents and deposit. Global TradeATF is the best broker to start with.