Commodities are known as the fundamental building blocks of the global economy.
They are natural resources traded on dedicated exchanges around the world.
There are two types of commodities – soft and hard. Soft commodities are typically agricultural like wheat or sugar, whereas hard commodities are metals or energies like gas, gold and silver.
The production and consumption of commodities depends on many factors, including:
As a result of changes in one of more of these factors, prices of the commodity can fluctuate significantly, thou commodity prices are not as volatile as other asset classes which offers you Trading opportunities.
Commodities trading is an enormous popular way to trade the financial markets.
The most common way for trading commodities is to buy or sell a futures contract. The price of a commodity futures contract is standardized, meaning the underlying instrument’s quantity (pound, ounce, barrel, etc.) is predetermined and appears the same for all market providers. A “futures contract” also obligates the holder to buy or sell a commodity at a predetermined price on a delivery date in the future.
Contract expires before the underlying future contract expiration day, eliminating the possibility of physical delivery.
Commodities are also generally traded as futures contracts. These are simply agreements to trade an asset at an agreed price and date in the future. This enables you to trade the contracts themselves without ever having to own the underlying asset.
In general, when bonds and stocks fall, the prices of commodities rise. Therefore, commodities can be used to hedge our portfolio.
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Trading financial instruments involves the risk of losing capital. Before you start trading, read the terms and conditions and assess your acceptable risk level.
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