A commodity is a basic good used in commerce that is interchangeable with other commodities of the same type; commodities are often used as inputs in the production of other goods or services. The quality of a given commodity may differ slightly, but it is essentially uniform across producers. When they are traded on an exchange, commodities must also meet specified minimum standards, also known as a basis grade.
Advantages of Commodity Trading
- Less Brokerage charge
- Instant exposure to global economies
- Trading without actually owning the financial instrument on which the contract is based Speculation on future uptrend/downtrend market price movements
- Ideal for beginner traders due to low deposits
- Ability to go short and profit from falling prices
- NO stock exchange fees
Commodities market, both historically and in modern times, have had tremendous economic impact on nations and people. The impact of commodity markets throughout history is still not fully known, but it has been suggested that rice futures may have been traded in China as long ago as 6,000 years. Shortages on critical commodities have sparked wars throughout history (such as in World War II, when Japan ventured into foreign lands to secure oil and rubber), while oversupply can have a devastating impact on a region by devaluing the prices of core commodities.
Energy commodities such as crude are closely watched by countries, corporations and consumers. The average Western consumer can become significantly impacted by high crude prices. Alternatively, oil-producing countries in the Middle East (that are largely dependent on petrodollars as their source of income) can become adversely affected by low crude prices. Unusual disruptions caused by weather or natural disasters can not only be an impetus for price volatility, but can also cause regional food shortages.
Investors who have a good understanding of the economic factors of the underlying commodities can employ CFD instruments to capitalize on that knowledge, using these assets as standalone opportunities or to complement a diversified trading portfolio.
When trading in commodities, traders need to assess the effects of global events on the markets, whether there are surplus supplies or heavy demand for the world’s resources. At AXNFX, we help traders with longer and short term strategies where commodity trading has the potential to reap lucrative rewards.