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How to Trade Commodities

How to Trade Commodities

When it comes to trading online, there are a host of options and ways to get started and you may be unsure of where to begin. Commodities trading involves speculating on the buying and selling prices of raw materials like gasoline, petrol, oil, natural gasses, silver and gold, or soft commodities like coffee, corn, sugar, cocoa and cotton. As quantity and quality are typically standardised in these markets prices are typically the same, so trading can be a bit simpler to learn and execute.

 Important Information about Trading Commodities

Commodities can be traded on trading platforms like CMC markets and one great way to do so is with CFDs. Contracts for Difference are derivative trading devices that give traders the opportunity to speculate on the price movements of commodities without buying them outright or taking ownership of the physical product.

Traders will enter into a contract with a brokerage and either ‘buy’ contracts on assets that have the potential to grow or open a ‘sell’ contract if prices look like they may drop. When the contract ends, the trader and broker will settle the difference in the chosen commodity’s price from opening to closing. CFDs are one of the only trading instruments that have the ability to speculate on market drops as well as increases.

The good news is that commodities are traded across the globe and markets are open twenty four hours a day, five days a week, just like Forex. The types of commodities are wide and varied, so traders will have the opportunity to stick to a chosen niche or diversify their portfolios, so the options are almost endless.

As CFDs function using leverage, where traders will use a margin of their own funds against a loan amount from a brokerage, it can be simple to get set up with little collateral and build experience and income as you learn. Leverage does come with some disadvantages and will vary from trading platform to trading platform, so it can be important to do some research and check regulation from authorities like the Financial Conduct Authority (FCA) before putting your money on the line.

How to Trade Commodities using CFDs

These are the general guidelines for the steps you need to complete when trading commodities using CFDs across a host of platforms:

  • Open an account with a brokerage (most trading platforms offer demo trading accounts, so that traders can get to grips with trading without any risks).
  • Choose the commodity you’d like to trade and either buy or sell.
  • Determine the trade size (
  • i.e.
  • how many units you want to trade).
  • Implement risk management and monitor your open positions.
  • Close your position (if it is not automatically closed).

The Pros and Cons of Trading Commodities

The benefits of commodity market investments include:

  • Lower portfolio volatility in a liquid market
  • Hedging/protection against inflation and geopolitical events
  • Diversification
  • Support for economic growth
  • Can be cheap to get started
  • Improved transparency in the niche

The disadvantages of commodity market trading include::

  • High leverage
  • Market volatility
  • Dependency on macroeconomic factors
  • Price speculation can affect prices in overall financial markets

Are Commodity Trading and CFDs the Right Instrument for all Traders?

While there are a lot of attractive points to commodities and CFDs can be a worthwhile selection for trading, there are pros and cons just like there are with any trading endeavours. It can be affordable to get into this niche and make use of leveraging to enter positions – and you could increase your chances of profits the more you trade, save and reinvest your collateral. Depending on your trading style, strategies, risk appetite and more, it could be the right idea, but there also may be instruments that could be a better fit.

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts lose money when spread betting and/or trading CFDs. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.

Marketing for CFDs and spread betting is not intended for US citizens as prohibited under US regulation.

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