FxBrokerReviews.org – Commodity trading is a favorite amongst beginners, it is easy, safe, and a reliable way to get started in the trading business. Commodities can be traded as a direct investment, using futures, as stocks, or even as Mutual Funds and EFTs. Moreover, the introduction of CFDs commodity has made this asset class even more accessible to a lot of traders.
Individual traders or even big institutions are headed toward commodity trading, today so what makes it so popular?
Commodity trading for beginners is a good way to diversify their portfolios apart from traditional securities and financial instruments. It is the most liquid market in the world, with high volumes of trades and consistent levels of supply and demand in the market.
Earlier, it was said to be a complex form of trading due to the everchanging price movements in the market, but with CFDs commodities and the various online commodity trading platforms, it has become easy to buy and sell commodities.
Before you make your first commodity trade here is a full guide on how to trade commodities online, the best commodity trading platforms, and more:
What is commodity trading?
Commodity trading refers to the global exchange of various commodities like gold, silver, crude oil, agricultural products, and more. The trading or returns depends on the price of the commodity at the time of the trade. The main factor that determines the price movement of commodities is the demand and supply in the market.
The nature of the commodity market is mostly dominated by small groups of big companies that are under the regulation of the governments.
Exchanges like the Chicago Mercantile Exchange (CME), the New York Mercantile Exchange (NYMEX) in the US, and the London Metal Exchange (LME) in Europe are some of the big institutions in the market that carry out most of the commodity trading in the world.
Why trade commodities?
Commodities in commerce are considered unique assets, or raw materials, primary agricultural products that can be bought and sold. Examples of commodities are oil, sugar, metals, natural gas, and more.
Commodity trading is the oldest and biggest market in the world. Traditionally it was done physically, but now there is a global network and several online commodity trading platforms.
Commodities work in a supply and demand system, when supply is high but demand is low prices fall, and when supply is low and demand is high prices rise. Therefore, based on this principle the price of the commodity moves, and Investors, and traders, can analyze the S&D levels and benefit from big price fluctuations. While beginners can take support from the various online commodity trading platforms.
The nature of the commodity market, allows it to be a good inflation hedge. As the market is severely affected by the demand and supply chain. What it means is that in times of inflation or deflation the almost always commodity retains its value and can promise good returns.
What are the risks of trading commodities?
As any form of trading and investment involves risks commodity trading is no different. Commodity trading for beginners can be a rocky ride if one doesn’t evaluate the risks and practice certain risk management strategies. Let us take a look at the potential risks in the market :
Risk of Volatility
While the volatility of the price of commodities is one of the main reasons people invest in them, it can also possess as a risk. The price fluctuations of the commodities are momentary basis, which means that they can dip at any given time. This can prove to be a huge loss for traders who were looking for the opposite results.
Volatility as a risk factor may be different for each commodity. It can be prominent for some or even vice-versa. For example, Gold is said to have the most price fluctuations in the commodity market.
Risk of Leverage
Leverage or also known as Margin is the downpayment you deposit for the trade of your preferred commodity. In simpler words, leverage is the loan that you take from the commodity exchange platform. While the margin is a great way to magnify trades, it can go against you if not used carefully.
What we mean is that if a trader uses a large amount of leverage trade the smallest movement or fluctuation in the price of the commodity can make significant changes. If the price moves in the wrong direction a trader can incur substantial losses. Therefore it is important to be aware that sometimes the losses can be greater than the amount you invested in.
Risk of an Emotional Influence
Sometimes a promise of high returns and profits compels traders to take hasty decisions that may not be the best in the long run. Any trading decision without market analysis and research can be concluded as a risky one. If you are unsure take the help of trading platforms and advanced traders.
Remember to only go with trusted and reliable trading platforms. Forex broker reviews can help you find out the best commodities trading platform.
Risk of any unforeseen situation
As mentioned above commodity trading depends on the demand and supply of the market along with any political, or economic situations of a country. Therefore, any unforeseen change in the geopolitical situation of a country like a war, or natural calamity can have significant impacts on the market leading to unforeseen risks.
These risks can not be predicted much and are often not in the control of any organization or country. For example the Ukraine Russain war or the coronavirus pandemic that severely hit the economy as well as the health facilities of the entire world.
How to trade commodities online?
Trading commodities online is a relatively simple process, but you need to be well aware of the market before you start trading. Therefore, if you want to trade commodities online, there are some important factors to keep in mind. Read below to place your first trade today.
1. Choosing a commodity broker
The best way to invest in commodities is through CFDs or futures contracts. Several trading platforms in the market offer you to trade commodity CFDs, Mutual Funds, EFTs, and more. While choosing a broker you should consider the following factors.
- It is regulated
- Has no hidden costs
- Provides adequate tools and educational resources
- Has low commission rates
For beginners, the best commodity trading platforms would be the ones that have demo accounts, have low commission rates, and have good educational resources.
2. Know your commodity
Once you have a broker to help you trade, you need to decide the type of commodity you want to invest in. different commodities have different fluctuations in the market so it is important to know the commodity you want to trade in
For example: if you are investing in gold then take the help of the tools and analyze the rise and fall of the prices before you buy or sell it.
3. Have a trading plan
If you are new to the trading business, avoid overtrading. Follow other traders if you are unsure and take small steps in the beginning. Having a trading plan helps to analyze the price movements of the commodities in the market.
What is CFDs commodity trading?
CFDs are considered an efficient way to trade commodities. They require lower capital requirements and allow traders to trade on both rising and falling markets. CFDs or contract of difference facilitates the traders to speculate the price movements of underlying instrument without taking actual ownership of the asset. It allows the trading of popular commodities like crude oil, gold, and natural gas on margin i.e. with leverage. Moreover, CFDs allow investors to trade commodities over a short period, making them a popular investment choice amongst traders and investors.
Remember it is crucial to note that even though leverage can help maximize the profits, it can prove to be risky if increased without consideration of the market.
What are the best CFDs commodity trading platforms?
If you want to trade CFDs commodity then we have compiled a list of the best commodity trading platforms as per your trading requirements. Let’s get to the review!
E-toro is considered to be the best Commodity trading platform when it comes to trading fees and social trading. It has low trading fees and the platform is free of cost i.e. all the tools and features can be accessed by all the traders. The platform offers a wide range of commodities to trade from.
- eToro provides real-time access to thousands of stocks, ETFs, and commodities.
- The platform allows traders low-cost trading with various incentives.
- It allows beginners to open a demo account.
- It supports features like copy trading.
- The trades are commission-free and low-cost.
- The platform charges withdrawal fees
- The registration process is quite lengthy
NAGA is a multi-trade platform with access to various stocks, commodities, EFTs, cryptocurrencies, and more to trade from. The trading platform has emerged to be a popular investment platform with a major emphasis on social networks and an active community of users. The various tutorials, videos, and guides can give a niche introduction on how to trade commodities online to all kinds of traders.
- The platform has huge product offerings
- Provides support in multiple languages
- It does not charge any deposit fee
- Provides personal trading assistant
- Charges account withdrawal fees
- Does not provide copy trading for demo accounts
IG has been rated as the best trading platform in the UK. It gives traders the choice to trade in various commodities, stocks cryptocurrencies, ETFs, shares, and more. With trading rates relatively low as compared to other platforms it provides a free demo account for all beginners and has a very user-friendly platform.
- Provides a free demo account to all traders
- Strong emphasis on customer service and education about the market.
- The platform offers competitive commission rates.
- Has a very user-friendly mobile platform.
- Charges an account inactivity fees.
- Takes a lot of time to register and open an account.
- Plus 500
The trading platform tops the charts to be the best CFD commodity trading platform. It has been rated as one of the best mobile trading apps by both Android as well as iOS users. The platform is user-friendly and allows traders to trade in various commodities and financial instruments.
- Lowest deposit of $100 minimum deposit requirement.
- The platform provides 24/7 customer service.
- Plus 500 charges zero commission from all trades
- Profits are generated from spreads
- The platform offers a limited product portfolio.
- It also lacks quality educational and research materials.
The best commodity trading platforms in 2022
- E-toro – overall the best trading platform
- NAGA – A multi-trade platform with the best social trading feature
- IG – Best platform for commodity trading for beginners
- Plus 500 – A best mobile app for CFD commodity trading.
Is commodity trading safe?
Like any other trading, trading in the commodity market has its risks but this doesn’t mean it isn’t safe to invest in commodities. An investor needs to understand the potential risks and price fluctuations of the commodities before investing.
Also the type of investment matters, it makes a lot of difference if you have invested in commodities through EFTs, stocks, or the futures market.
When should you trade commodities?
There is no specific time that can be considered the best time to buy commodities. Commodities are a hedge against inflation, therefore buying commodities before high inflation can prove to be a good investment strategy. But, it is also important to take note that it can be difficult to predict when will there be a period of high inflation.
If you want to buy a commodity there is no defined time, you just have to keep a check on the price fluctuations and place your buy when you get the maximum benefit from the investment; consider the same while selling any commodity.
Commodity trading is a good investment option for all kinds of traders. They are a great way to diversify your portfolio if you understand the various aspects of the commodity in which you want to invest.
According to our research, the best commodity trading platforms overall would be IG and E-toro. If you are looking for a variety of commodities and other financial products then NAGA is your go-to platform lastly if you are someone who prefers mobile apps for trading then you should consider Plus 500.
Before you make any decisions read thorough reviews and go with a reliable and experienced broker.