Commodity Trading Explained
A key to successful commodity trading is a good understanding of the product or asset being traded. Because commodity trading involves a wide variety of goods to choose from, it is very likely that you will find a specific product that you are already familiar with.
For instance, you probably consume cooking oil and coffee on a daily basis, and you have a pretty good idea on how these products are produced and what they are used for. This is definitely a good thing because when you trade in commodities, it is a big advantage if you understand and know a lot about the product you are trading.
As mentioned there are also lots of other assets and exclusive commodities you can choose to trade with, including precious metals like gold and silver. You will do well as long as you have a good grasp of the factors that affect their prices.
While the big number of assets available for commodity trading is what makes the strategy attractive to investors, it can also be counterproductive. For one, people tend to get overwhelmed when presented with a massive amount of choices. Choosing the right commodity to trade can sometimes be confusing.
When choosing the asset to invest in, a good tip to keep in mind is to go for the more popular commodities. After all, they are popular for a reason – other investors find them interesting and profitable. These commodities are preferred investments in practically all parts of the globe. While the trading markets are volatile, and the trading volumes are constantly changing, these commodities always manage to be at the top of the list, albeit in changing order.
Having said that, here are 10 of the best commodities for trading to help make the decision-making process easier for you:
The commodity is an important part of modern society. Everyone uses it – from households to industries. It has become a fixture in practically all aspects of life. Thus, crude oil price can have a tremendous effect on people and industries. Huge amounts of oil are produced on a daily basis to meet the massive demand. While this commodity is comparatively new, it has become one of the most important and influential among all commodities on the market today. However, it also has a tendency to be damaging.
Coffee is among the oldest commodities on the market, and it is also one of the most traded. Next, only to water and tea, coffee is considered as the world’s third most consumed and most popular drink. Millions of people all over the world drink coffee daily. Research reveals that Sweden and the Netherlands are the world leaders in coffee consumption.
After oil and coal, natural gas is the next most used fuel source in the world. This makes the product a very popular commodity on the market. Similar to oil, natural gas has myriads of uses. Despite the fact that some global market forces try to limit natural gas consumption, it has remained a popular asset for commodity trading. Being one of the by-products of oil-drilling has also contributed to the popularity of natural oil in the commodity trading market.
For many centuries now, gold has remained as one of the world’s most influential commodities on the trading market. The precious metal was used in the past as a medium of exchange in many countries in the world. It later evolved into a standard that insured modern currencies. In many cultures today, gold is still considered a symbol of wealth. It is therefore not difficult to understand why this precious metal is among the most sought-after commodities on the market, and one of the most frequently-traded.
Also known as Brent crude, Brent oil is considered as the best oil produced in the entire continent of Europe. Sourced in the North Sea, one of the major distinguishing features of Brent crude is that it is thinner compared to other types of oil. Being thinner is a big advantage because this means the product can be refined into diesel and petrol more easily. Brent crude is also used as a major price benchmark for worldwide oil purchases. It is, therefore, a no-brainer to say that its price has a significant impact on global oil prices.
Since time immemorial, silver has been associated and compared with gold. Like gold, silver is also considered as one of the world’s most valuable metals. As such, it is also one of the most popular options for commodity traders. It has been prominently used in decorative products and jewelry. Silver is also a popular component of electronic and electric products.
In the past few years, corn has steadily grown in popularity that it has become one of the most profitable grains in the US and the rest of the world. Corn is not only a popular animal feed. Humans consume corn as well. In fact, corn is a very popular food item that is enjoyed in practically all parts of the globe. Corn may be consumed on its own or as an ingredient to many delectable dishes.
Source of Biofuel
The commodity is a great biofuel source. To the uninitiated, biofuel is a type of fuel that is sourced via modern biological processes like anaerobic digestion and agriculture. This is in contrast to the traditional geological processes that produce fuel. These include fossil fuel formation that generates petroleum and coal from pre-historic biological materials.
Corn is used as feed to nourish a wide variety of animals that are raised for their milk, meat, and egg production such as cows, goats, chickens, and ducks, among others.
Wheat is another commodity that is quite prominent in people’s daily lives. In fact, it is practically a fixture in almost all the meals that you consume throughout the day – be it in your breakfast cereal, the sandwich you have for lunch or the pasta for your dinner. It is also used to feed livestock and other farm animals. Simply put, wheat has a lot of benefits for both humans and animals. This is why its popularity as a trading commodity has been steadily on the rise.
It is safe to say that sugar is one commodity that is traded in every country in the world. While studies have shown that sugar consumption has minimal health benefits (it is, in fact, found to be harmful), it is an undeniable fact that it is a regular fixture in most people’s daily diet. Sugar has become even more convenient and prevalent in today’s fast-paced lifestyle. As such, it has held on to its place as one of the most traded commodities in the world.
Among all clothing materials today, cotton has the distinction of being one of the earliest fabrics to be used. Likewise, cotton has been traded on the global commodity market for centuries. Unlike most other fabric materials, cotton is durable and convenient to work with, making it an optimal choice for everyday wear. It is also used as a material for furniture and other home décors. Because of cotton’s widespread use today, it is likely that everyone owns at least one piece of clothing made from cotton.
Other Commodities on the Market
Bear in mind that the commodity market involves a large number of assets and products to choose from. It is inevitable that many popular commodities that are considered as globally influential in their own right would not make it to the list featured in this post. These include copper (another precious metal) and soybeans.
In the commodity trading market, the best assets to pick are obviously those that are most commonly traded because they already have a developed market. Thus, most experts would recommend newbies to go for the more popular commodities to have a bigger chance of success. This is why most of the CFD brokers today include these popular commodities in their product line-up, and in most cases, the only assets on their list.
Commodity trading can be done in different ways. You can do CFD trading or use stock market futures to invest in commodities. Whatever option you choose, however, what is important is to gain enough knowledge before investing your hard-earned money. Learn more about commodity trading through the guides we offer on this site.