Commodity Trading: Discover Markets to Trade in 2024
Thinking of joining the world of commodity trading? It can be extremely overwhelming with so many different markets to choose from! From precious metals such as gold and silver to energy commodities like oil and natural gas, there’s virtually no limit to the variety of markets you can find.
Different markets portray different characteristics and risk factors. For a beginner, it is very hard to choose the right commodities to trade as each market has its own uniqueness.
Commodity trading: Your guide to trading
In this article, we’ll take you through the best markets for commodity trading, unveiling what makes them appealing and also pointing out the types of risk they can pose.
Hop in and discover why you should choose VPTrade for commodity trading by the end of this article.
1. Gold: Stability in Commodity Trading
Gold has long been the commodity trading of choice for the risk-averse because its value tends to hold steady when the economy spins up or down when stock markets plunge and traders play the safe card.
Thus, gold is seen as a hedge in times of financial instability. This view stems partly from the fact that, as a finite resource, gold’s production is relatively predictable. Thus, it is considered a safe option because it is seen to be resistant to inflation.
However, trading in gold remains risky for several reasons.
An interest-rate hike by a central bank, for example, usually brings stronger demand for the US dollar. This means that gold, which is priced in US currency, tends to weaken as the dollar’s value increases.
Similarly, gold prices can be affected by geopolitical events and currency fluctuations.
So, even though gold can be seen as a possible portfolio diversification, traders should also understand that there can be substantial market volatility. Take the example of the pandemic, which saw the price of gold surge before falling back sharply as economies began to stabilize again.
With VPTrade you can follow market movements in real-time, trading gold through a CFD (Contract for Difference) to cover both growing and falling prices (although price movements can of course lead to losses as well as gains).
2. Silver: Higher Volatility in Commodity Trading
Silver, often regarded as the better of the two, has important industrial uses (in consumer electronics and renewable energy), which help to make the price sensitive to swings in industrial demand.
This volatility opens up opportunities but also increases the risk of big price swings.
Last year, during the coronavirus downturn, silver prices surged by more than 40% due to interest. Yet, all that volatility also meant that prices could plummet just as quickly. VPTrade’s traders can take advantage of real-time data and risk-management tools, such as stop-loss orders, that allow them to control their exposure to silver price volatility.
3. Oil: A Market Driven by Global Events
Crude oil, which is one of the most traded commodities, has prices very much based on global supply and demand dynamics.
That means that events ranging from geopolitical shocks, such as the Russia-Ukraine conflict in 2022, to natural disasters, such as hurricanes ripping through US oilfields, to technological advancements, such as the development of renewable energy technology, can alter oil prices drastically.
Although trading opportunities exist, it is also very volatile, and the use of leverage by trading oil futures on VPTrade can lead to gains that are multiples of the amount of the margin, but also to losses that may wipe out the trading account.
Traders should use leverage responsibly to make sure they do not suffer a big loss.
4. Copper: The Economic Indicator in Commodity Trading
Copper’s price is highly correlated with global economic activity. Indeed, the metal tends to be strongly associated with construction and manufacturing demand as an economy expands. When economies grow, demand for copper rises, and commodity prices follow suit.
This dynamic in the opposite direction means that slowing economies can put downward pressure on prices.
In 2021, as the world emerged from the pandemic recession, and amid a surge in demand for green energy technology, copper prices hit record highs.
VPTrade enables you to gain exposure to the industries that are the main consumers of this strategic metal. Even so, because copper prices may be a factor, you need to pay close attention to global economic trends and manage your positions accordingly.
5. Wheat: The Agricultural Giant in Commodity Trading
Wheat is among the most important globally traded agricultural commodities; its price is a reflection of global weather conditions, crop yields, and geopolitical tensions. In 2022, the Russia-Ukraine conflict massively disrupted global wheat supplies, causing spikes in prices and disruptions in global food
Although trading wheat is a chance to gain from such movements, storage, weather, and political events (which affect subsidies and tariffs) can all throw the agricultural sector into turmoil.
VPTrade has risk-management tools to help traders stay abreast of these factors, and manage their positions should a sudden market movement occur.
Best Trading Practices in Commodity Trading
Commodities can provide excellent trading opportunities, but risk management is essential, so here are some ground rules.
1. Firstly, never trade with money you cannot afford to lose. If you are, you should only allocate your lifestyle negatively. On the other hand, if you consider trading to be a second job, you must have the protection mechanism of a regular income. It is always better to treat trading as a survival game rather than a get-rich-quick scheme.
2. Secondly, if using margin, ensure you are adhering to the rules and that your account is protected with a guaranteed stop mechanism to limit losses. Consider buying ‘insurance’ by paying a premium on a futures option, if you believe a market-wide correction is impending.
3. Finally, a sensible and disciplined approach is paramount.
– Do your homework: before trading a single commodity, make sure you understand how the commodity markets work. It is also important to read up on global news and trends that will impact commodity prices. For example, concerns over geopolitical tensions might lead to a spike in oil prices, while bumper wheat crops might see prices plummet.
Risk Management: Always place stop losses and limit orders for your trade so that you protect your trades if the market moves in the opposite direction. Commodities are highly volatile, management structure, you can run yourself into the wall, losing your trades. For example, while oil market trade may bring gains, in case of a sudden market disruption, you can lose heavily if your trade is not protected from unexpected abrupt price movements.
– Diversify your portfolio: spread your trades between different commodities. This will help offset risk, as not all commodity markets move in the same direction. For example, combining gold and other industrial metals with agricultural commodities such as wheat can help you better handle market volatility.
– Don’t Use Leverage Carelessly: Leverage increases your potential for gains, but it also increases your potential for loss. If trading on margin, risk only what you are prepared to lose because large price swings can rapidly deplete your trading capital.
By advanced risk management tools, including stop-loss orders and alerts based on your customized risk parameters, we ensure that VPTrade is the right place for you to trade safely and responsibly in a healthy trading environment.
Risks in Commodity Trading
As a whole, there is potential in exchanging commodities but some drawbacks to keep in mind:
– Price Volatility: The price of commodities, especially crops, can be highly volatile – swinging dramatically in response to differing market conditions, geopolitical turbulence, or a freak of nature (for example, an unexpected hurricane in the Gulf of Mexico can see crude oil prices spike). Trading commodities is risky and traders must be prepared for this volatility and risk mitigation needs to be in place.
– Leverage Risk: Leverage increases the potential for higher returns, as well as the potential for greater losses. A trader who uses high leverage in an oil futures trade can potentially lose much more money if the market moves in the wrong direction.
– Liquidity Risk: Some commodities may exhibit lower liquidity, and it can be difficult to either enter or exit trades. For example, agricultural commodities such as wheat or coffee may become illiquid, especially when these crops are not in season.
However, an informed trader on VPTrade can minimize these risks through daily news updates or using stop-losses. It is of utmost importance, though, to have a thought-out trading strategy before approaching any trade, with a risk management plan in place to protect oneself from substantial losses.
6. Natural Gas: A High-Volatility Market in Commodity Trading
Natural gas is a volatile commodity because its price is driven by a number of factors. Its price can change abruptly depending on a range of variables, from seasonal demands to weather and geopolitical developments.
Demand for heating is greater in winter because natural gas is increasingly used for this purpose, and driven up by cold snaps.
This can cause prices to soar. But exceptionally pleasant weather or technological innovations in renewable energy might cause a glut in prices.
Trading natural gas lets you speculate on these price movements, although you need to be aware of the risk.
Because natural gas can be very volatile, traders should always use risk-management techniques such as stop-loss when the market moves against them.
7. Coffee: A Global Favorite in Commodity Trading
Coffee is the world’s most traded agricultural commodity, and prices are often affected by weather conditions, outbreaks of disease, and global demand. In 2021, a prolonged spell of very cold weather in Brazil, the world’s largest producer, reduced the country’s harvest, pushing
While trading coffee futures can allow you to gain from these price fluctuations, agricultural commodities are notoriously volatile – weather patterns, pests, and environmental factors, to name but a few.
8. Corn: A Crucial Commodity in Agricultural Trading
Another basic building block of the industrial system is corn, an important agricultural commodity for a wide variety of foods, alcoholic beverages, and biofuel. The price of corn is influenced by weather, crop yields, and government policies like entering corn prices in recent years.
If you open a position on corn futures, you are involved in one of the biggest segments of the world economy: the world’s food production and supply.
This is why agricultural commodities are highly sensitive to changes in supply and demand, and that is why managing your risk effectively is crucial.
VPTrade, you will see the best commodity trading markets on the net where you will have the best risk management tools, live feeds, and bulletins to help you trade with responsibility. Whether you want to trade base or precious metals, energy, or agricultural commodities, VPTrade has the platform and tools for you to stay ahead of the crowd. Trade wisely!
Disclaimer:
The information presented herein have been prepared by VPTrade and does not intend to constitute Investment Advice. The Information herein is provided as a general marketing communication for information purposes only.
Materials, analysis, and opinions contained, referenced, or provided herein are intended solely for informational and education purposes. Personal Opinion of the Author does not represent and should not be construed as a statement, or an investment advice made by. Recipients of this information should not rely solely on it and should do their own research/analysis. Indiscriminate reliance on demonstrational or informational materials may lead to losses. Past performance and forecasts are not reliable indicators of the future results
Therefore, VPTrade shall not accept any responsibility for any losses of traders due to the use and the content of the information presented herein.