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Commodities Trading

Commodities, whether related to energy, food, or metals, play a significant part in everyone’s lives. Any car owner will be affected by the rising prices of crude oil, and higher soybean prices may affect the price of your groceries.

Investing in commodities offers you a rare opportunity to diversify your portfolio beyond the traditional securities, for both the long and short term. Investing in commodities requires no professional knowledge; the basics are relatively easy to understand, and online trading has made commodity trading widely accessible to individual investors.

Trade commodities with South Africa’s largest and top-performing broker!

Why Trade Commodities?

Commodities are the perfect addition to a trader’s portfolio. They hold many benefits for beginner traders as well as experienced ones and if you trade responsibly, you can achieve great results. Below, we made a list of some of the key benefits of trading various commodities.  

The commodities market is one that will always be attractive as it effects all our planets natural resources. Politics, environmental factors and economic decisions can influence the price of commodities. If Brazil, one of the largest coffee producers in the world, suffers poor weather, the price of coffee will escalate. If the world suffers a pandemic and global travel is disrupted, the price of oil will collapse. 

What is Commodity Trading all about?

When a trader is interested in trading commodities, the trader doesn’t have to clear out their cabin space for hundreds of crude oil barrels or piles of gold bars. They simply trades using a futures contract where one profits from the difference in price between the time the position was opened and closed.  

CMTrading offers the following commodities:

The Advantages of Trading Commodities

If you’re looking to diversify your portfolio without going overboard with risk factors, then commodity trading is likely the perfect asset for you!

Here are some of its biggest benefits:

  • Major profit potential. If you’re an experienced trader, the commodities market may offer more profitable opportunities than other asset classes.
  • A diverse portfolio is a good portfolio. It’s never a good idea to put all your eggs in one basket, so a good trading portfolio should be highly diverse with various assets in order to keep risks to the minimum. Commodities are considered fairly safe compared to other assets and that’s why they are a safe option to consider when setting up a portfolio.
  • Commodities can protect you against inflation. In an inflationary environment, where currencies depreciate, the price of commodities usually goes up. This makes commodities the perfect way to protect your portfolio during times of uncertainty and inflation.
  • Low commissions. For traders who are making a lot of short-term trades, commodity trading is exactly what they need. The commission on a commodity is lower than most other tradable financial assets, which makes it ideal for short-term traders.

How to trade commodities

The most common way to trade commodities is to buy and sell contracts such as CFDs (Contracts For Difference) on a futures exchange. A trader agrees with another investor based on the future price of a commodity such as gold or oil.  

How it works

A trader might agree to a commodity futures contract to buy 1 ton of gold at $1900 an ounce in 30 days. At the end of the contract, you don’t transfer the physical item, but you close out your contract by taking an opposite position through the spot-trading market.   

In this example, when the futures contract reaches its expiration date after 30 days, you would close out the position by entering another contract to sell the gold at the current market price.  

If the spot price ends up higher than your contract’s price of $1900, you will make a profit, and if it’s lower, you would lose money.   

Conversely, if you had entered a futures contract to sell gold, you would make money when the spot price goes down, and you would lose money when the spot price goes up. Traders can, at any point, close out their positions before the contract expiration date.  

Commodity investing is a great way to enhance your portfolio. Before making any trades, you need to carefully understand the commodity price charts and other forms of research. Commodities are quite varied and depending on which type of market can be highly volatile. The gold price can skyrocket if the USD drops while oil can collapse if global travel stops.  

Since market price moves can lead to large gains and losses, you need to implement risk-management strategies. Each commodity requires its own research and skills to make the best of the market.  

Click here for a list of trading conditions and spreads.

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