Commodity Trading

Coffee is one of the most popular commodities in the world. Arabica (KC) and Robusta (RC) are two coffee varieties that attract the attention of investors and traders. Coffee arabica is a variety of coffee grown in Ethiopia and Yemen, accounting for more than 60% of global production. Robusta, on the other hand, is a less expensive variety that grows in Africa and Latin America.

The price of coffee can be affected by factors such as changing weather conditions, distribution costs, geopolitics, global health issues and the strength of the US dollar. Also, coffee prices can be moved by factors related to supply and demand. Commodity market analysts argue over the future of coffee prices as the impact of climate change, such as severe droughts in various producer countries around the world, has hurt supply, pushing prices up. Bad harvests and increasing demand could boost coffee prices in the future, strengthening the commodity’s trading potential.

Wheat is one of the most vital food components for humans and is also used in livestock feed. Wheat is the most traded agricultural commodity worldwide, making it an attractive option for traders who look to capitalise on wheat price fluctuations and benefit from the commodity’s massive market liquidity.

Wheat commodity trading can take place on several exchanges but two main ones that are listed in wheat futures: Chicago Board of Trade and NYSE Euronext. Wheat futures prices are quoted in USD and cents (USD) per bushel.

The countries producing the biggest quantities of wheat are the European Union with 134 million metric tons (MMT) annually, China with 137 MMT and India with 107 MMT. China and India may be two of the largest wheat producers in the world, but they are also among the largest consumer countries.

Oil has made the world go round for many decades. Crude oil is the fuel that boosted heavy industry and still serves as the main source of energy for millions of transport means across the world. Crude oil can be extracted from the ground or the sea, followed by processing in refineries. There are tens of different crude oil types, but the two most important benchmarks in global financial markets are Brent crude oil and the West Texas Intermediate (WTI) crude oil.

WTI crude oil is sourced in the Permian Basin in the US southwestern part; the basin is considered to be the highest-producing oil field in the country. Commodity analysts note that it is a high-quality crude oil that requires less refinement compared to others. On the other hand, Brent crude oil is sourced from the North Sea and comes with characteristics such as low density and low sulphur content that make it easy to be processed. The correlation between the Brent crude and the WTI crude is high as they tend to follow global oil market fundamentals and respond similarly to macroeconomic developments.

Another factor that commodity traders should take into consideration before trading oil is the Organisation of the Petroleum Exporting Countries (OPEC) and its partners (OPEC+). OPEC+ is a group of oil-producing countries that collectively decide on oil output, thus influencing oil prices in global markets. Geopolitical tensions tend to play a role in driving oil prices higher. Natural disasters, political crises related to oil-producing nations, and US oil inventory figures are vital elements of market research for the majority of commodity analysts.

In general, commodity trading requires a low margin, especially when popular commodities such as gold or crude oil are involved. This allows traders to open large positions and gain exposure to market prices.

A commodity is a basic good or raw material, mainly used as a resource in the production process of other goods and services.

Commodities are categorised into hard and soft materials. The four main types of commodities are metals, livestock and meat, agricultural, and energies.

In economics, a deliverable commodity is a standardised good that can be physically delivered when a futures or options contract expires.

Commodity trading volumes on a futures exchange increase in periods of high inflation and market uncertainty. Thus, traders and investors who buy and sell contracts often use commodity trading as portfolio diversification and inflation hedge.

1. Account Verification & Funding → Open a Live Account, deposit some funds into it, and activate your trading account following the necessary KYC (Know Your Customer) process.
2. Education & Practice → Learn, research diligently, and familiarise yourself with commodity trading by delving into the robust educational section. Understand how the commodity market works and practise your strategies with virtual funds on the Demo Account.
3. Market Research & Plan your trade → Prior to starting commodity trading on your Live Account, browse through FP Markets analysis, market news and tools, including the Economic Calendar, to choose a commodity market asset to trade CFDs on.
4. Trade Size & Market Direction → After you have carefully selected the financial instrument (commodity) you want to trade on, make an informed decision on the size of your trade (lots, pip value etc). If you expect the commodity price to rise you can go long (Buy). If you expect a decrease of the commodity’s value, you can go short (Sell).
5. Risk Management & Account Protection → There are numerous risk assessment tools, features and trading strategies to help you protect your trades from market volatility and price fluctuations. Utilise the Traders Toolbox’s features, including Stop Loss order, Take Profit order, and other risk management tools to reduce the trading risks.
6. Trade Monitoring & Closing Trades → Monitor your trades, track profit and losses and make the necessary strategy adjustments in real-time, using the MT4/MT5, cTrader platforms or the relevant mobile applications. Close your trade when you judge the timing is right.

Commodity traders are individuals or institutions that buy and sell commodities, including energy products, metals, livestock, and agricultural products in the futures exchange.

Traders often use fundamental and technical analysis, indicators, and other financial instruments when trading commodities.

Commodity traders are split into two major categories: hedgers and speculators.

Hedgers are traders who use commodity markets to mitigate risks associated with price fluctuations. Hedging against falling commodity prices or rising costs is important for producers and consumers and can be done by locking in future prices.

Speculators, on the other hand, are traders who seek to profit from price movements. Managed funds, as well as retail traders, use commodity futures, options and commodity ETFs to generate profit.

The most traded commodities in the world are the highly volatile WTI crude oil and Brent crude oil, natural gas, gold and other base metals, coffee, sugar, wheat, cotton, corn and soybeans.