What is Commodities?
Commodities trading is a popular approach to speculate on the financial sectors. The origin of trading commodities dates back to Asia many years prior. Commodities are generally traded two ways with money and forward, and with the delivery dates being the fundamental contrast between the two. The most traded commodity areas are energies (oils and gas), metals (gold, silver, and copper), and soft commodities, (for example, cocoa, wheat, and wheat).
Main Features of Commodities trading
Trading Oil: Brent & WTI
The oil market is varied with different prices quoted for crude oil depending on its location, quality and properties. The most commonly traded oil contracts are Brent (Brent Sweet Light Crude) and WTI (West Texas Intermediate). They are the two global benchmarks for oil trading.
Brent crude oil is extracted from the North Sea, while WTI oil is extracted in North America. WTI is used for diesel fuel, so it is considered to be the best quality from the oil benchmarks. However, Brent is recognized for its high-quality gasoline production. There are other factors that you should to take into consideration when determining the price of the two benchmarks. This includes transportation fees, amount of production and the availability of storage facilities.
For many years the prices of the two were only a few dollars apart, however, over the last decade, Brent has surged ahead and now trades $5-$10 higher than WTI.
Trading Metals: Gold & Silver
Gold has always been the most coveted precious metals throughout history, both for its status and monetary value. It has always had its links to currency, now traders tend to use gold as a safe haven asset in their trading portfolio, in times where there is a financial crisis.
In a similar way to Gold, Silver has always been linked to currency and even though it doesn’t share the same status as Gold there are other reasons why traders turn to this particular precious metal. There is a lower cost to enter and open a position in the silver market compared to Gold and is considered to be a relatively volatile market making it attractive to traders who may want to optimise their chance of bigger returns. However, it is important to remember that all trading involves risk.
Commodities Trading Hours
All times are GMT+3
|Brent Crude Oil (UKOUSD)||Monday-Friday (03:00 – 24:00)|
|West Texas Intermediate Crude Oil (USOUSD)||Monday-Friday (03:00 – 24:00)|
|Silver (XAGUSD)||Monday-Friday (01:01 – 23:59)|
|Gold (XAUUSD)||Monday-Friday (01:01 – 23:59)|
How to calculate CFD margins?
When entering into a contract for difference, you are required to deposit a percentage of the contract full value. This percentage is also called a margin. A margin allows clients to open large positions while investing a part of the value. The margin is always used as leverage, giving traders complete access to the position. As usual, a margin is required before opening a position on your account. The account should also hold extra funds that can cover any potential losses and stop your account going into margin call. Remember that leverage is a dual thing. It can maximise your profits, as well as increase your losses.
An Introduction to Trading with the Trend
Trades can be made in the direction of a trend or counter to the trend. With countertrend or mean reversion, trading can be very profitable. However, it always requires more experience. Being new to trading, you can consider trading in the direction of the trend as your starting point.