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Commodity trading can be exceptionally volatile and at the same time, create opportunities for traders to profit by going short or long in these markets. Trading in commodities like Gold, Silver, and Crude Oil in the right way can help you diversify your portfolio and maximise potential profits. 

While commodities are hard assets, it’s possible to trade them through CFDs and profit off of the changing price of the commodities without actually owning them.

Let’s take a look at the major commodities around the world and how you can trade them effectively.

What are commodities?

Commodities are the main building blocks of the global economy, and they are used to create other goods. Most, if not all, commodities come from the earth and they possess a uniform quality. 

Major commodities include Oil, Gold, Silver, Cotton, and Gas. These are also essentially raw materials used to manufacture other products.

They fall under two main categories — Hard commodities and soft commodities.

Hard commodities are natural resources that are either extracted or mined. These can include Oil, Gas, Gold, and Aluminum.

Soft commodities are mostly agricultural products like wheat, corn, sugar, soybean, and coffee.

Since commodity markets are very volatile in nature, they offer more opportunities to profit by going long or short. Many factors can affect commodity prices, including weather patterns, government policies, consumer trends, currency valuations, reserve levels, and infrastructure.

What is commodity trading?

Commodity trading refers to buying and selling of commodities through trading by derivatives or exchanges. Basically, you trade commodities and profit from the changing prices in the markets. When trading commodities, you should consider factors like the liquidity of the market, level of volatility, and other price movements. 

One of the most effective ways to trade commodities is through CFDs (Contract for Difference). 

A CFD is a short-term contractual agreement between the trader and broker. When the trader ends the contract, both parties exchange the total difference between the opening and closing price of the commodity. 

It’s possible to make a profit or loss on commodity CFDs depending on what direction the selected commodities end up moving in. More importantly, CFDs give you the advantage of profiting from commodity price movements without actually owning the commodity or paying the entire amount for the commodity position size. Essentially, you can take advantage of leverage to only pay 20-25% of the total position size.

There are many benefits of trading commodities, including: 

A safe bet

Commodities like Gold and Silver are sensible and practical investments even when turbulent and highly volatile markets. That is because commodities are an asset that always ends up retaining their value even in challenging economic conditions.

High profits

The usually dramatic swings in commodity prices mean that with the right knowledge and the right trading strategies, you can take advantage of the vast difference of the volatile markets.

Diverse portfolio

Instead of pigeonholing yourself to a single asset, you can diversify your portfolio effectively by readily investing in commodities.

Topmost traded commodities in the world

1. Gold

Gold is a precious metal with a signature yellow colour and sheen. It has been popular among the masses for several centuries, and there is no slowing down on the Gold craze anytime soon. 

While nowadays, people primarily use Gold for jewellery production and also invest in the asset for future gains. The majority of the Gold around the world is mined in Russia, China, Australia, the US, Canada, Ghana, and Brazil.

Also important to note that Gold is referred to as the safe-haven asset since its value tends to rise during political or economic uncertainty. In 2020, when the lockdowns were suddenly announced around the world, markets crashed and millions of jobs were lost. But Gold was one asset whose prices shot up significantly.

In other words, it is beneficial to move your money into Gold when the dollar is steadily falling as Gold has an inverse relationship with the dollar. 

2. Silver

Silver is another precious metal that has also been a popular commodity to trade for many centuries. But unlike Gold, 50% of the demand for Silver comes from its industrial use. Silver is readily used in electrical contacts, photographic films, and solar panels. 

And like Gold, Silver is also used for jewellery production. 

Since Silver’s prices also rise during economic uncertainty, it is also considered a safe investment by traders. 

However, it is important to note that if you are thinking about investing in either Gold or Silver, Gold is still a better and more reliable investment since its price isn’t directly dependent on its demand in the market. Since half of Silver’s demand comes from industrial use, it can often vary and affect Silver prices as well.  

Moreover, Silver is mostly extracted from other metals like copper. So the fluctuations in the demand and prices of these metals can also affect the price of Silver. 

3. Brent crude oil

Brent crude oil is one of the two major types of oils that set the benchmark global prices worldwide. 

It is extracted from the North Sea off the shores of the UK and Norway, and it represents about 15% of the world’s total oil reserves. Its location also makes it more cost-effective for international transport. 

It is termed the sweet light oil because it is low in density and sulphur content, which in turn makes it easy to refine and turn into usable end products. 

Like all the other commodities, the Brent crude oil prices are also directly dependent on the supply and demand in the market. 

4. West Texas Intermediate (WTI) crude oil

West Texas Intermediate (WTI) is the second type of crude oil that you can trade. It is also a high-quality sweet light oil with an even lower sulphur content than the Brent crude oil. It is extracted from various states of the US, including Louisiana, Texas, and North Dakota.

Therefore the prices of the WTI oil are also very heavily dependent on the consumption in the US since its production is mostly done in landlocked areas, making it difficult to export the oil to international regions. 

5. Platinum trading

Platinum is a precious metal that is used in automobiles, electronics, and of course, jewellery production. Trading in Platinum offers a great way for traders to express a bullish view on global growth. At the same time, Platinum also works as the store of value as well as an insurance policy against dollar weakness.

Start trading commodities today

If you still haven’t dipped your toes into commodity trading yet, it’s time that you did. Blueberry Markets allows you to trade in top commodities like Gold, Silver, Platinum, Brent crude oil, and WTI through CFDs. The online trading platform offers tight spreads and optimum leverage to get your trading ground running.

Sign up for a live trading account or try a risk-free demo account on Blueberry Markets.

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