Trade in commodities on the commodity exchange in recent years is gaining momentum, which makes this line of trading very promising and allows a trader to receive a steady additional profit. Commodities include assets such as energy resources (oil, gas), minerals, precious metals, and agricultural products. Such trading is a great way for traders to diversify investments and, therefore, to reduce risks and generate income.
Despite the fact that a lot of substitutes for natural resources and goods produced from them appear in the global industry, as well as the fact that resource-saving technologies are being introduced everywhere, in many countries of the world there is a high growth in industries that require more and more raw materials and commodities. Also, the moment when resources and raw materials become scarce due to the fact that natural sources are depleted due to their maximum use is not far away. Based on the foregoing, commodity exchanges will not remain without work for a long time, and traders will profit from commodity trading.
The demand and supply of commodities depend on many factors, including the volume of natural reserves, economic crises and even the climatic situation in the leading raw material producing countries. These circumstances must be considered when trading commodities. However, the volatility of these products is very high, higher than that of currencies. For traders, this means that the probability of making a profit is much higher.
The dollar is always the currency of commodity transactions, and if suddenly the trader’s account is opened in another currency, the costs of exchanging the currency of the account for dollars can significantly reduce the trader’s profit.
Trade in commodities occurs on the commodity exchange.
Features of trading on commodity exchanges
Commodity exchanges are exchanges where certain groups of goods are traded. Here, contracts for the purchase/sale of commodities are concluded. Trading does not lie in the fact of buying or selling a real product. As a result of the purchase of any goods, you should not expect that after a while a wagon of oil will be delivered to your home or a few cubic meters of gas will be brought to you.
The history of commodity exchanges dates back to 1409, and is connected to the city of Bruges, Belgium. This city is located by the sea, and owing to its good geographical position, it has become one of the main shopping centers in Northern Europe. In 1460, the exchange appeared in Antwerp, and in 1531, a special building was built for the exchange. At the beginning of the 17th century, an exchange was founded in Amsterdam, where for the first time they tried trade in samples of goods, which made it possible not to bring a huge amount of goods to make a deal, but to deliver all goods directly to the buyer. In order to start trading on a commodity exchange today, a trader only needs a computer or smartphone with the access to the Internet.
Now, there are about 200 different exchanges around the world, and the process of trading here is strictly regulated and subject to iron rules. About 70 types of goods are traded on the stock exchanges, and the total market turnover is about 30% of the total world trade.
All goods on the commodity exchanges are divided into two types:
- Industrial raw materials, as well as derivatives:
- energy products — oil and petroleum products, gas, coal, etc.;
- nonferrous metals, including copper, tin, nickel;
- precious metals — gold, palladium, silver.
- Agricultural products, lumber and derivatives, including corn, soybeans, rye, wheat, cocoa, rubber, etc.
The growth in commodity trading occurred in the eighties of the twentieth century. At this time, trade in energy products, including oil and various derivative products, reached its peak. It was oil that became the first and most important asset on the exchanges of that time.
There are several types of oil traded on commodity exchanges, the most important of which are benchmarks.
- Brent — oil, production of which occurs in the North Sea, it is exported to European and Asian markets. The cost of about seventy percent of the remaining grades of oil is formed on the basis of the cost of Brent;
- WTI (West Texas Intermediate) or Light Sweet — oil produced in Texas, the main market – the United States;
- Dubai Crude — extracted in the Persian Gulf. The cost of this oil is considered to be the price standard. According to this standard, the price of all the oil produced in this region is set.
Oil and its derivatives are among the most important energy products in the world, and oil trading on the commodity exchanges is one of the most profitable ways of making money for traders. In modern history, there are moments when the largest oil transactions on commodity exchanges caused unstable situations in certain countries, for example, in Iran, Iraq, and Venezuela.
The price of oil, without exaggeration, is one of the pillars of the world economy, and speculative trading in commodities, especially oil, is a highly profitable way of investment. The main purpose of the conclusion of oil transactions is to make a profit (and not a purchase in order to own and accumulate), which makes oil a highly volatile commodity with dynamic quotes.
Traditionally accepted volume of oil trading is a barrel. The barrel is 42 gallons or 158.99 liters. This unit of measure was adopted by the Petroleum Producers Association back in 1872. However, the exchange market has no such restrictions, and traders can trade in volumes corresponding to their capital. Umarkets experts recommend that you start trading with a deposit from $500.
Precious metal trading
The development of technologies has become the reason why the volumes of precious metal trading is constantly growing. Until the 80s of the mid-twentieth century, only four types of metals were available on the stock exchange, and by the 90s, transactions were made with 15 types of metals. The main places of metal trading are the London and New York Stock Exchanges, where “multi-ton” transactions are made.
Gold is one of the leading trading assets and a traditional investment instrument that helps many traders earn a steady income.
Gold trading features
For successful gold trading, a trader needs to take into account certain features:
- a large daily range of quotes, where the spread to 500 points per trading day is not something extraordinary, but quite common;
- gold volatility. Due to rate fluctuations of up to 100 points in a few minutes, profits can be earned very quickly;
- it can be very difficult to determine the speed and tempo of gold movement;
- in technical analysis, support and resistance levels, as well as Fibonacci lines, work well, which gives the opportunity to make accurate forecasts and conduct confident trading;
- do not hurry; for greater reliability, it is better to wait until the candle on the chart closes. Enter the market and start trading only after the complete formation of the candle;
- use high time frame, which will eliminate minor market interference and show a more accurate result;
- the least successful time for gold trading is the last hours before the closure of the trading session in New York and the first hours of trading during the Asian session;
- one of the most successful trading strategies in the market is a strategy for trading based on the price fluctuations;
- trading in gold, as well as other trading instruments, do not rest upon conjectures and momentary impulses, but use technical analysis and expert materials from Umarkets analysts.
What makes commodity trading profitable for Umarkets clients?
- The list of assets includes world’s most demanded goods, energy products and precious metals;
- A worthy alternative to currency trading for the investor;
- High market volatility, providing high probability of making a profit;
- Open access to a variety of macroeconomic information about products for right trading decisions;
- Trading signals based on expert forecasts.
Trade commodities on commodity exchanges with Umarkets and expand your investment portfolio
earning extra money!