Once you’ve decided to enter the online trading world, it’s essential to know which financial asset classes to focus your time and energy on. Naturally, you’ll want to focus on those offering the most profitable opportunities.
Trading the commodities market is a great way to take advantage of changes in the global economic system. As raw materials are the foundations of international trade, applying your skill, judgment, and knowledge of commodities to online trading can generate healthy profits.
First, you need to understand exactly how to trade this asset class, to develop expertise in the issues and challenges that drive commodity prices, and to understand the mechanics of trading in order to capitalize on market movements.
What is a commodity?
A commodity is a raw material that individuals and institutions buy and sell as required for their business needs or for the purposes of speculation.
Which type of commodities can you trade?
In the financial markets, there are many different Contracts for Difference linked to commodities. The most important categories are the following:
- Agricultural products: corn, soybeans, wheat, etc.
- Exotic products: tea, coffee, sugar, cocoa, etc.
- Metals and Minerals: gold, silver, platinum, palladium, copper, iron, nickel, zinc, etc.
- Energy products: coal, natural gas, oil, etc.
- Livestock products: live cattle, lean hog, etc.
What factors influence commodity prices?
While every commodity has a set of specific factors that influence its price, there are common issues that play important roles in how commodity prices evolve. Among the most important drivers are:
- The value of the U.S. Dollar, as most commodities are priced in USD
- The demand-supply relationship
- The weather
- The evolution of government, economic and monetary policies
- Geopolitical tensions
- Global economic dynamics
- Changes in inflation rates
- Issues affecting storage and transportation
Is commodities online trading for you?
Nowadays, starting online trading isn’t complicated at all, as you can easily open a trading account and start trading with very little money. However, if you want to be successful in your trading activity, you need to know exactly what you’re doing, not only in terms of the nuts and bolts of trading but macroeconomics – the big picture, in other words.
According to the World Economic Forum, the number of people living in cities could reach as many as 6.4 billion by 2050. This rapidly rising urban population needs huge amounts of raw materials and basic products to survive. People need to be fed, to have rooves over their heads, transport, and access to employment. Not only will this population growth, it will also become more prosperous. Commodities are the building blocks of that process and by understanding the ebb and flow of national and international economies, you could be able to profit.