CFD Trading – Commodities
Can You Tell the Direction the Price of Oil, Gold or Silver Will Move Next?
AvaTrade offers to its UK traders access to a wide range of commodity CFDs; from silver and gold trading online, to sugar and crude oil trading, the options are limitless. Trading commodity CFDs is an excellent way to diversify one’s trading portfolio and with the wide choice of available commodities, you can easily find a commodity to trade that will match your trading preferences and needs.
Trade commodities with AvaTrade UK and enjoy:
- Access to hard and soft commodities
- A selection of powerful and intuitive platforms with a variety of features and tools: MetaTrader 4, MetaTrader 5 for manual trading, as well as a range of best automated trading platforms in UK
- Trade on mobile while on the go with our new trading app – AvaTradeGO app
- Competitive spreads
- Leverage of
- Access to professional, responsive multilingual customer support available 24/5
Trading Commodities CFDs
Commodities trading is very popular with investors and traders worldwide because this asset class offers a world of choice and the opportunity to invest on a diverse range of products.
Commodities are intricately linked to development in organized societies. For instance, agriculture and mining are closely intertwined to human history and civilization. Initially, people traded by exchanging one commodity for another. For example, one could get oil in exchange for grain, or one would trade sugar and spices for an ingot of copper. As economies have grown globally, the use of commodities has increased, and they have become a very important part of our everyday lives, whether they are related to energy, food or metals CFD trading.
Today, trading commodities has remained immensely popular since it is comparatively easy to understand, and it is largely driven by the market forces of demand and supply. Let us look at some examples; if the price of crude oil increases due to a lack of supply, anyone who drives a car will be impacted by the rising prices of oil. The impact of a drought on the supply of corn will also influence the price of corn trading and other related products.
Interestingly, the prices of commodities are relatively stable when compared to the prices of stocks trading. Trading CFD commodities are also an excellent way to diversify one’s portfolio beyond traditional forex market and stock trading. In fact, some investors view commodities as a secure investment when the stock markets are volatile or bearish. This is because commodities traditionally move in opposition to stocks.
You can invest in a range of commodities at AvaTrade through CFD (Contract For Difference) trading and take advantage of commodity price movements, both up and down.
Understanding the Commodities Market
When talking about commodities, we refer to products which have uniform quality and whose demand is high enough for them to be exchanged across different markets. Usually found within the futures segment of the financial trading world, these assets are normally traded either by speculative investors looking to make a profit, or by manufacturers seeking to hedge their positions against variations in prices of materials which may adversely affect them.
Commodities fall under one of two main categories:
- Hard commodities,
- Soft commodities
Hard commodities usually consist of natural resources or minerals such as gold, copper or oil. On the other hand, soft commodities can include livestock or agricultural produce which have to either be cared for or grown to be produced.
In either case, commodities are traded on the basis of demand and supply, with their value being heavily influenced by various macroeconomic events.
- Hard Commodities
Usually, hard commodities are the ones which make major headlines, as they are considered to be the basis for the health of an economy. Since production and supply of hard commodities can be fairly accurately predicted, their performance is seen as an indicator of global economic health. In particular, the total worldwide demand for oil and copper CFD trading is closely monitored in order to establish where the global economy is headed.
A large part of the hard commodities market consists of energy goods, such as natural gas trading and crude oil. This segment also includes a variety of commonly used metals like steel, aluminium, gold, copper and silver. Countries whose economies are heavily reliant on the exportation of certain commodities, may find that the commodity’s value is linked to that of their currency.
Metals are commodities that serve a variety of purposes. For instance, gold not only serves as a hedge against inflation, but it is s also used by many investors as a safe haven for their funds during periods of high market volatility. There are also industrial metals, such as aluminium, copper and steel, whose future supply and demand forecasts can be considered as a reflection of economic growth.
- Soft Commodities
The other side of the commodities segment has soft commodities that include livestock and agricultural produce. Unlike hard commodities, soft commodity prices can sometimes have sudden and substantial fluctuations, since they are subject to a wider range of forces which determine their supply and demand levels.Soft commodities are largely influenced by weather conditions. If winters are unusually cold, summers unseasonably warm or if there are strong storms, livestock and crop production may be adversely affected. This may make it difficult to predict the direction of commodity prices, resulting in a high level of volatility.
There are many other factors that can have an effect on the production of agricultural commodities. A bumper harvest can result in a surplus and a corresponding drop in price. Unlike hard commodities which may be found in different geographic regions of the world, many soft commodities are only produced in certain regions which have the ideal conditions of soil quality, temperature or humidity.
Why Trade Commodity CFDs?
Undoubtedly, commodity trading is a big sector within the financial investment industry as millions of private individuals and institutions scramble to get in on the opportunities that supply and demand in the market bring. Besides the traditional direct trade in physical commodities, there are many other ways for commodities to be traded in an indirect way, such as online. This is a convenient workaround for the undesirable effects that direct trade in commodities may have.
In particular, AvaTrade commodity CFDs offer investors significant benefits.
The physical trading of hard and soft commodities will always present you with certain unique problems which simply do not exist when you trade through CFDs. Imagine purchasing 50 barrels of crude oil – where will you store them? Can you afford to even buy them? Although the essence of the transaction is similar in either case, both traditional trading and CFDs, there are barriers to entry which make physical commodity trading unsuitable for smaller traders.
So here are the many benefits of trading online commodities CFDs:
You Do Not Need to Physically Handle or Own a Commodity?
Physical commodities are a challenge to buy, transport and store. This is something that you will need to consider in addition to other issues and costs that are associated with distribution or warehousing. If you are a trader without a substantial budget to cater to these extra costs, physical trading of commodities is out of the question.
Online commodity trading is an easy and convenient workaround to these problems, since they take the physical purchase of an asset and turn it into a nominal transaction. When you enter into a commodity CFD transaction, you do not buy or sell the physical commodity like oil, silver or coffee trading; instead, you buy a contract that is based on the underlying commodity’s value. This means that a CFD is an intangible asset which needs you to do nothing more than finance the cost of the transaction.
Lower Your Entry Cost
Accordingly, the cost of buying into a CFD position on a commodity is much lower than it would cost to buy a load of the same commodity. Since the price of a contract for difference is priced at a level that is relative to the asset price, it lets you take an indirect position in the commodities market but at a much lower price. This allows individual traders, without the financial muscle of institutional investors, to also get a piece of the action.
Take Advantage of Leveraged Transactions
Another major advantage you gain by trading commodity CFDs is that they give you the ability to get into leveraged positions, due to the margined design of this mode of trading. Since CFD transactions are always much larger in value than the capital you need to stump up, you can take trading positions many times larger than what you would otherwise afford to pay upfront. This lets you reap rewards from amplifying the profits of the transaction.
For example, with a 5% margin, you can boost your transaction size up to 20 times. This suddenly makes a single point movement in the commodity price a much more attractive proposition than if you held the physical commodity.
Why Should You Trade Commodities Online with AvaTrade?
Physical trading of commodities or entry into the market through commodity CFDs both have their advantages and drawbacks, so it all comes down to weighing the different pros and cons of either one and making a personal decision on which suits your trading needs best.
However, with the lower entry requirements that AvaTrade provides, as well as the ability to earn much higher returns from price movements, commodity CFD trading gives you the freedom to select a highly profitable alternative to the physical purchase of commodities.
What do you stand to gain when you trade commodities on AvaTrade?
- Portfolio Diversification:
This is definitely one of the best reasons for you to add both hard and soft online commodities trading to your overall list of investments. Not only do commodity CFDs help you to significantly increase your return on investment, they also do not run the same risks as stock trading.
- Online Commodity Trading Platforms:
MetaTrader 4 & metatrader 5 is the world’s most popular trading platform and is the software that powers AvaTrade’s commodity CFD trading. The platform offers enough features and flexibility to satisfy both new traders and experienced pros.
- Choice of Assets:
Although this asset class is grouped together, it actually consists of a large number of commodities including oil, natural gas, gold, copper, silver, coffee, cotton, wheat trading, sugar and many more, all of which are available on the AvaTrade platform.
- Trade Anywhere:cfd
Too busy to sit at your computer all day to trade commodities? The AvaTradeGO mobile trading application can be used on your mobile phone or tablet, so that you never miss an opportunity to make money from commodity CFDs.
The best-of-class, multilingual client support team is available to answer all your questions 24 hours a day, 5 days a week. Support can be reached via live chat, email, phone and social media.
With such a vast online trading industry, it is more important than ever for you to enter commodities trading online with a name you can trust. AvaTrade is a registered broker that is subject to stringent EU regulations on financial trading.
Every day, the world’s economies consume huge amounts of commodities. This means that commodities traders have a choice of assets to pick from. In addition, commodity trading UK means that you do not have to be worried about storing physical goods or how to offload them when it is time to sell.
AvaTrade provides UK traders with access to a large selection of commodities CFD trading options that allow you to earn from a range of sectors that include metals, energy and agriculture trading, among others.
Sign up today and enjoy the benefits of a cutting-edge commodities trading platform.
Main Commodities FAQ
What are the best commodities to trade?
The most popular commodities for traders are gold and oil. This is because both enjoy excellent liquidity and sources of information. However these are not necessarily the best commodities to trade. The best commodity for any trader is the one they understand the best. One where they have detailed knowledge about the market, or about supply and demand for the particular commodity. It’s this deep knowledge that makes it easier to successfully trade any commodity. And anyone can get this type of knowledge through research and study.
Why is it better to trade commodities with CFDs?
The traditional way to trade commodities is by using futures contracts. However this is not always the best way to trade commodities. For one thing many traders don’t have a futures trading account. And trading futures requires a fairly large upfront investment. Plus futures involve leverage, and while this can inflate gains, it can also magnify losses. All of these issues can be avoided by using CFDs to trade commodities. Liquidity is never an issue with CFDs, you can get started with a few hundred dollars, and you control the leverage, or lack of leverage, when trading CFDs.
Is it possible to trade commodities online?
Many people think about trading commodities and they get the image of the trading pit, similar to what you see in the movie Trading Places, where Eddie Murphy and Dan Aykroyd corner the market on orange juice futures. While commodities trading may have looked like that in the past, in the 21st century it is electronic and commodities markets can be traded online from all corners of the globe. All that’s needed is a trading account with a broker that offers access to the commodity markets and anyone can trade commodities online.