Trading Commodities
Commodities are the raw materials from which products are made. Examples include precious and industrial metals such as gold and copper, agricultural products such as wheat, fuel products such as crude oil and soft commodities such as coffee.
In our commodity guides we look at what affects the price of each Commodity and how it can be traded.
Trading commodities can be done through various instruments, with futures contracts traded on major exchanges like CME Group being a popular choice. To start trading commodity futures, you’ll need to open an account with a registered broker that offers access to the desired exchange. Once your account is set up and funded, you can begin placing trades based on your market analysis and trading strategy. It’s essential to understand the specific characteristics of the commodity you wish to trade, such as its seasonality, supply and demand dynamics and geopolitical factors that may impact prices.
You can also gain exposure to commodities through other instruments, such as options on futures, exchange-traded funds (ETFs) or Contracts for Difference. If you choose that route, your broker or market maker will quote a price which will move in close relation to the price of the underlying contract.
Sometimes you will see more than one contract quoted. The number of contracts available will differ from commodity to commodity, as some are priced for regular delivery, like oil, while others are subject to annual or semi-annual harvests.
However, each approach comes with its own set of risks and requirements. As with any form of trading, it’s crucial to educate yourself, develop a sound trading plan, and manage your risk carefully. See more educational resources on trading commodities here.
Be aware that you are exposed to the price of the ETF, not the cash commodity price, and the two can diverge over time as the costs of managing the ETF impact its performance.
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