Discover the most popular commodities for your trading portfolio
Commodities are basic goods or raw materials utilized in the production of other goods and services. Some major commodities are wheat, oil and gas.
- Gold, silver, copper and platinum
- Corn, wheat, coffee and sugar
- Gas, Brent oil, Crude oil
How it all works
Considering that supply and demand is the main driver of commodity prices, commodity traders need to keep a watchful eye for any demand increase and similarly for any interruptions in the supply chain as this will likely cause a significant surge in prices.
Case in point, the recent drone attacks on Aramco oil fields and refineries which took out more than half of the oil giant’s output had as a direct outcome the biggest oil price jump in the last 30 years.
Since commodities are traded on the open market, their prices can change quite rapidly, and this is why the price you pay for a full tank of gas is sometimes more expensive than usual and the same is true for your electric bill.
However, it’s important to note that commodity prices are also subject to the whims of speculators or retail traders who aim to take advantage of the volatile intraday prices to make a profit.
Why trade commodities
One of the most important factors in selecting a tradable market is how actively it’s traded. If you are going to speculate and profit from the price movements of an asset, the market has to be moving i.e. being somewhat volatile and also there have to be active traders speculating on the price i.e. liquidity.
Deep liquidity or high trading volume makes an asset more reasonably priced, increases order execution speeds and reduces the amount of slippage which can sometimes negatively impact your trades with higher trading fees.
Therefore, when traders look for a favorable commodity to trade, they should first consider the liquidity available since this will not only reduce trading fees, but also increase the chances of executing the trade at the requested price and not a less favorable one.
Markets with low trading volume are usually the ones that are most volatile and subject to steep price spikes in either direction. This is true not only for commodities, but for currencies and stocks as well. When there aren’t enough buyers and sellers to fill orders quickly, the prices become wildly unpredictable and while there is potential for profit, the risk usually outweighs the benefits.
The most active commodities today
In truth, the global outlook is deteriorating as the market environment is moderately deflated under the recent turmoil of trade wars, sociopolitical turmoil and terrorist attacks.
However, when uncertainty dominates the markets, investors rush to safe-haven assets such as gold and therefore, this is the perfect opportunity for this precious metal to shine.
All metrics point to appreciation in gold despite the high interest rate climate and if trade wars start to escalate again, they may drive gold prices even higher.
If you are searching for a stable commodity with a bullish bias, gold is likely to keep its gains for at least a couple more years while remaining decently active on the daily chart.
Another strong-performing commodity is undoubtedly crude oil. With production and manufacturing industries constantly expanding, the demand for oil and gas products remains exceedingly high. Trade talks between the US and China will also have the final say here as well, however, but in the case that an agreement isn’t reached, oil prices may start sinking.
As of late, oil markets are witnessing increased volatility, and this is an exciting time for traders as they can take advantage of these market movements and make a profit regardless if the price is moving up or down.
Despite the current political climate and a global recession looming on the horizon, there are commodities that still perform extremely well and the opportunities they present can be of great benefit to day traders.
Click here to learn more about trading the commodity markets with CM Trading.