WHAT ARE COMMODITIES?

Commodities are raw materials or agricultural products that can be bought and sold, with examples being gold, Natural Gas and wheat. From Copper to corn, coal to crude oil, commodities are central to life – and the lives of billions of people around the world are affected by their price fluctuations.

There are two ways to trade commodities ­– buying and selling via exchanges, or trading them using derivatives such as binary options, CFDs and spread bets (where permitted). The most liquid commodities markets in the US include crude oil, Natural Gas, and RBOB gasoline, as well as soft commodities such as sugar and wheat. When it comes to a global outlook, steel, aluminum and iron are some of the most traded commodities by volume.

WHAT ARE THE MOST TRADED COMMODITIES WORLDWIDE?

By trading volume, the top commodities include gold, silver, US Crude Oil, Brent Crude, copper, and Natural Gas. Products such as coffee, wheat and sugar are also featured on the list of most traded commodities. Here are some of the major ones to consider: Gold, Silver, Crude Oil, Copper, Natural Gas, Coffee

For thousands of years, gold has been a highly valued metal. Rising gold prices may signal political upheaval or uncertainty, due to investors turning to the precious metal as a safe-haven asset when other financial instruments are struggling.

WHAT IS COMMODITY TRADING?

Commodity trading can mean two things – buying and selling commodities via exchanges, or trading them via derivatives (where permitted). 

Some commodities are more tradeable than others. For example, markets such as orange juice, oats and feeder cattle are less liquidity – such markets often prohibit speculators from entering or exiting a trade at the point they would like to. An example of a more tradeable commodity is Natural Gas, with crude oil and corn also considered liquid markets.

When trading commodities, speculators should consider factors such as the level of volatility associated with the trade, the aforementioned liquidity of the market, and other factors that influence price movements, listed below.

Why Trade Commodities?

The commodities market is attractive to traders because it can offer: 

A Safe Haven

Certain commodities, such as gold, can be a sensible investment in times of market turbulence. This is due to the likelihood of the asset retaining its value – or even increasing in price – during challenging economic conditions.

Profitable Returns

The dramatic swings in commodity prices mean that, with the right knowledge, traders can take advantages of price movements in liquid markets.

A Diversified Portfolio

Broad exposure to commodities can be a good source of portfolio diversification, as they collectively show low correlations with equities and bonds.

WHAT MOVES PRICES IN COMMODITY MARKETS?

When negotiating the commodities market, traders should consider a variety of factors, such as:Supply and DemandMacroeconomic PerformancePoliticsBehavior of Other Traders in the Market

A lower supply of a commodity tends to mean the price of that commodity will rise, and a higher supply conversely means the price is likely to fall. The variables affecting supply include:

  • Seasonality: for example, for agricultural products
  • Movements in production costs: for example, as a result of increased efficiencies, technological investment or operational changes
  • Changes in the competitive landscape: for example, if new producers enter or existing producers leave the market

While oversupply (supply exceeding demand) may push down prices, demand becoming greater than supply can cause a shortage which can raise prices again. The rapid fluctuations that can result means those trading commodities should keep up to date with supply and demand conditions.

TIPS FOR TRADING COMMODITIES
  • To stay ahead of the market, see our commodity news and analysis where experts analyze some of the major commodity price developments
  • Before entering a trade, decide on a risk-reward ratio. At DailyFX we recommend using a positive risk-reward ratio. See our Traits of Successful Traders guide for more information on this
  • See our economic calendar for the dates and times of important data releases
  • Traders should always update their knowledge and skills. DailyFX experts host webinars that cover trading strategies and tips, see our webinar calendar to learn more
COMMODITY TRADING HOURS
COMMODITYOPEN TO CLOSE (ET)BREAK TIME (ET)OPEN TO CLOSE (GMT)BREAK TIME (GMT)
Gold18:00-17:00 Sunday-Friday17:00-18:00 Monday-Friday23:00-22:00 Sunday-Friday22:00-23:00Monday-Friday
Silver18:00-17:00 Sunday-Friday17:00-18:00 Monday-Friday23:00-22:00 Sunday-Friday22:00-23:00Monday-Friday
Oil – US Crude18:00-17:00 Sunday-Friday17:00-18:00 Monday-Friday23:00-22:00 Sunday-Friday22:00-23:00Monday-Friday
Oil – Brent Crude18:00-17:00 Sunday-Friday17:00-18:00 Monday-Friday23:00-22:00 Sunday-Friday22:00-23:00Monday-Friday
Copper18:00-17:00 Sunday-Friday17:00-18:00 Monday-Friday23:00-22:00 Sunday-Friday22:00-23:00Monday-Friday
Natural Gas18:00-17:00 Sunday-Friday17:00-18:00 Monday-Friday23:00-22:00 Sunday-Friday22:00-23:00Monday-Friday

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