Commodity Trading for Beginners

Commodity trading can be challenging because you need to understand the markets and the economy that causes price changes in commodities. Traders have to keep one thing in mind before starting, which is that commodity trading requires a lot of dedication, experience and hard work to achieve success.

So, what is commodity trading? Well, it refers to the buying and selling of a large range of instruments including oil and gas, metals and cocoa, coffee, wheat and sugar.

Read on to learn about commodity trading in this commodity trading guide for beginners.

Benefits of commodity trading

If you wish to diversify your portfolio, commodity trading is a good option. Read on to find out about the benefits of diversification and other advantages of commodity trading:

  1. Trading opportunities : Commodity prices are generally quite volatile due to supply and demand, exposure to natural disasters, and geopolitics. However, volatility can provide lots of trading opportunities.
  2. Flexible leverage : With commodity trading via CFDs, you can use leverage to control bigger trading positions with small deposits. This could potentially help you magnify your gains, however you should remember that leverage may also magnify your losses.
  3. Diversification : As commodities have little to no correlation with traditional assets like stocks, commodity trading can be a great way to diversify your portfolio and hedge against risks.
  4. Hedge against inflation : The biggest advantage of commodity trading is that it acts as a hedge against inflation. Commodity prices tend to rise during such periods, so they offer protection from the effects of inflation.

How to start commodity trading

There are several ways to start commodity trading. These include the following:

Commodity trading via CFDs

You can trade commodities via CFDs (Contracts for Difference) which are considered a convenient way to participate in the commodity markets. This is because leverage allows you to use less capital to potentially gain greater exposure to an underlying instrument. It’s important to remember that leverage can increase your potential profits as well as your potential losses. With CFDs, you can also speculate on the price movements of an underlying commodity without actually taking physical delivery of the commodity.

Commodity trading with futures

You can trade commodities through futures. You enter into an agreement to buy or sell the commodity at an agreed price on a future date. Futures agreements are speculative just like CFDs as you do not own or take physical delivery of the underlying asset.

Commodity trading with stocks

You can purchase the stock of a company that produces the commodity. Stock investments follow the price of an underlying commodity so if the price of the commodity increases, the company will be more profitable as its share price will rise as well.

Commodity trading with IronFX

Start commodity trading with IronFX, a global leader in online trading since 2010. You can trade commodities online via the best commodities trading platform, MT4. With IronFX, you will also enjoy access to 500+ financial instruments, great trading conditions such as competitive spreads from 0.0 pips as well as fast execution.

DISCLAIMER: This information is not considered as investment advice or an investment recommendation, but is instead a marketing communication

Location: United Kingdom

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