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Trading Commodities with CFDs in 2021: What You Should Know



Trading Commodities with CFDs in 2021: What You Should Know

When we talk about the oldest financial market that has been around for generations, it is the commodity market. These days, traders have an opportunity to trade commodities with the help of contracts for differences or CFDs. This type of trading offers several advantages and unique features. If you want to learn more about trading commodities with CFDs in 2021, this is the article for you.

What are commodities?

Before you can get into CFD trading commodities, it’s important to understand what it’s all about. Commodities are generally divided into several categories that include the following:

  • Metal commodities

This type of commodity includes platinum, gold, copper, and silver. Compared to other commodities, this is one of the most reliable. Many investors choose precious metals, especially gold, to invest in at times of increased market volatility.

  • Agricultural commodities

Agricultural commodities refer to various food crops, industrial crops, cocoa, sugar, coffee, and cotton. Depending on the season and weather conditions, the volatility of these commodities can be affected. The rising of commodity prices can also become a result of reduced agricultural supply and overpopulation in a certain area.

  • Meat and livestock commodities

Just as the name suggests, this category includes meat (especially pork and pork bellies), live cattle, and such.

  • Energy commodities

Another popular category that attracts many investors is related to energy. Energy commodities include natural gas, heating oil, crude oil, ethanol, coal, and electricity. Before investing in this type of commodity, it’s important to be aware of the new alternative sources of energy being developed right now. Also, there may be changes in the export policies established by OPEC.

You can choose the right type of commodities for you depending on your capital, risk tolerance, and other factors. It’s always important to assess how much risk you can handle before deciding on a certain commodity.

Why are CFDs right for trading commodities?

Modern commodities trading via contracts for differences is considered an efficient way. One of the biggest reasons for choosing this type of trading is its high leverage. It means that you have to invest less while getting a chance to make a larger profit. With CFDs, you don’t acquire the ownership of a certain product but rather make a profit on the price fluctuations. Nowadays, with the development of online commodity trading, individuals can access global markets with a fairly humble capital.

What are the advantages of trading commodities?

The reasons why investors choose to trade commodities may include the following:

  • The physical value of commodities

In situations of market volatility and economic uncertainty, commodities are likely to retain their value.

  • Diversifying one’s portfolio

Commodities help lower the volatility of a portfolio if it includes only equity. Many people view commodity trading as a way to reduce the risk associated with having a portfolio and protect their funds.

  • Independence from currencies

A great thing about commodities is the fact that they are likely to hold their value even during the periods of currency falls, as they are independent of them.

  • Serious price fluctuations

Commodities are known to be extremely volatile, which is something to be aware of. This aspect can be both a blessing and a curse, as there is a risk of losing large sums of money as well as the possibility of making a significant profit. The price of commodities can be affected by political changes, weather conditions, and strikes.

Start to trade commodities with CFDs

Trading commodities with CFDs is extremely popular nowadays because of its ease. Because you don’t directly purchase commodities and make a profit on the opening and closing price differences, you don’t have to worry about delivery and storage. Thanks to this method, you can avoid dealing with traditional commodities exchanges, such as NYMEX, CME, and more. With CFDs, you can trade in both directions – on the increase and decrease of the price. Another significant advantage is that this type of trading often doesn’t involve commissions.

In most cases, starting to trade commodity with CFDs involves only a few simple steps after you choose a convenient online trading platform:

  • The most important step is to select your market based on the situation in the world and your preferences.
  • The next step is to decide on the trade direction. If you think that prices on commodities will fall, you can sell or ‘go short.’ But, if you think that prices will increase soon, you can buy or ‘go long’ on the market position.
  • After the previous steps are taken, you can now make a decision on how many commodity units you want to buy.
  • As there is a risk always associated with CFD trading, there are a number of risk management tools that are used by traders. Some of the options include closing at profit and closing at a loss. You can choose the right tools based on your experience and how you assess the situation on the market.
  • Monitoring your position is an essential step. The situation on the market can change in an instant, which is why you should always be aware of your funds and the status of your trade.

Depending on the chosen platform, you can get access to different trading and risk management tools. It’s important to select a trading platform that works well with your trading style and offers advantageous conditions for trading commodities with CFDs.

Trade Commodities Effectively in 2021

As you can see, commodities trading with CFDs offers a range of advantages. This includes both the independence of commodities from currencies and the fact that they can help diversify your portfolio. At the same time, it’s important to weigh out your options and be prepared for the high volatility of commodities. It is associated with a higher risk of losses but also gives you a chance to make more profit.

Are you interested in trading commodities with CFDs? Do you have any experience in this area? Please, tell us what you think about this topic and share this article with those who may find it useful.


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