Commodity Trading

In commodity trading, traders speculate about the price movement of assets like crude oil, gold, corn and coffee. These assets are very useful for people looking to diversify their portfolio and capitalize on trends as they develop. The trick to be successful in commodity trading is accumulating knowledge to identify good trading opportunities.

Commodity Trading in Binary Options

From the outside, commodity markets appear complex; but did you know that gold, oil, silver and platinum are amongst the most popularly traded financial assets in the world? This is perhaps explained by the fact that these markets are easy to analyse. Once you correctly identify the trend of a market, more often than not you will be able to successfully predict the future price movement of the underlying asset.

The challenge is that commodities have a higher level of volatility than the other financial assets like currencies and stocks. For example, oscillations in the price of gold can be 20 times greater than changes in the value of a currency pair like EUR/USD. Consequently, the key to be successful in commodity trading is careful analysis and research.

For example, if you believe that the price of gold will go down in the next few months due to a hike in interest rates, you can place a PUT option on gold. Similarly, if you decide that a surge in the global production of electrical products is imminent involving electrical copper wiring, you can place a Call option on the metal.

Why Trade Commodities

Relatively Straightforward

Commodity trading is not particularly complicated because there are only about forty viable markets to trade. This is in stark contrast with Stock Trading where potential traders have over ten thousand potential assets to sift through.

Affordable & Simple

Trading commodities has never been easier than with binary options. Using tools like 60 Seconds, it is now possible to access the financial market with investment amounts as low as $5. With binary options, you are also only concerned with the direction (and not the magnitude) of the price movement of an underlying asset.

High Volatility

Volatility is a concern when trading commodities. However, this particular characteristic also means that the commodity markets offer more lucrative opportunities for traders. The key is to conduct enough research and analysis on an asset before investing.

Easy Analysis

The price movement of assets in the commodity market can be studied through technical analysis. This method of forecasting future prices is based on the premise that you can analyse the past to predict the future.

Factors That Influence Commodities

Shares of companies are influenced by several events. Understanding these events and their impact on the value of a stock can inform successful trading decisions.

Surplus

To understand how supply and demand affects the commodity markets, let’s consider the behavior of oil as a financial asset. If the supply of oil increases but demand remains constant, the price of oil per barrel decreases. Conversely, if more people are using oil but the industry cannot match the demand, the price per barrel increases.

For example, the unceasing production of oil by Saudi Arabia and America in recent times has caused the commodity to decrease in value.

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War & Conflicts

Wars and other conflicts can cut off a country’s access to the materials it needs to function. They create uncertainty about the future availability of commodities and the risk associated with reduced supply can have a significant impact on prices and demand.

When war breaks out near or around shipping ports, the transfer of certain commodities can also be disrupted.

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Natural Disasters

Weather conditions can have a significant impact on the commodity markets because most of the assets transacted are agricultural in nature. For example, a deep freeze in Florida can affect orange crops. When this happened in the past, the price of the commodity experienced a hike.

This has to do with supply and demand. With a high demand and a reduced supply, a commodity is likely increase in value.

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