COMMODITIES TRADING

Precious metals like Gold, Silver, Palladium have been used since old times as means of exchange. They are still very famous trading instruments. Furthermore Gold is considered as a safe haven because their state does not change too much related to other assets. Commodities offer a wide range of diversity. Commodities are linked with basic needs of human beings, this is why commodities are everywhere present, in any process of life. First, they were traded against each other- a bushel of grain for crude oil, a copper ingot for sugar and coffee. Nowadays, commodities are traded directly against the US dollar mainly, and other currencies also.

When you choose to diversify your trading portfolio with the safest class of financial instruments, with commodities, you better keep an eye on the news, weather and political events- which are the major influencers for commodity prices. Let’s see how. If OPEC members have disagreements and leave their meeting with disagreements, then oil price tends to have fluctuations depending on the type of disagreement. Heavy rains or long dry seasons cause agriculture price movements. Having a wide view of global economic issues, you will enjoy a better trading experience.

In contrast, commodities with other financial assets, commodities trade raw materials and primary goods and not certain products or services as the stock or forex market do. Commodities are divided into soft and hard types. Soft represent agriculture products and hard are usually mined like energies and precious metals.

Commodities, as mentioned before, are dependent on supply, demand production levels, politics, taxes, and weather conditions. Gold representing precious metals is one of the biggest commodity assets. Gold remains the number one precious metal because of the value storage and numerous industrial uses. Gold is called ‘safe-haven’ since it is a good risk neutralizer. Gold is always found in the trading portfolio of traders who want to protect their capital against market price movements.

There are three most crucial reasons which influence traders to choose commodities as investment assets. The population growth- population growth means more mouths to feed, which raise the demand for agricultural commodities. Also, people need infrastructure which could have a significant impact on the demand for metal and energy commodities. Inflation rate is the rate at which prices increase. So, with the same amount of money as today, tomorrow you will buy less products of the same type. Speaking of commodities, it will need more dollars to buy the same amount of a certain commodity in the future, which will lead to higher prices of the commodities. Portfolio diversification, if you diversify your portfolio in various commodities, the loss which might come from decreasing markets will be recovered by other assets which might be stable or even in a higher state. Commodities will help you to create diversification and better manage risk.