You've probably heard of gold, oil, or coffee, but did you know these are examples of commodities that could be traded online? Commodities trading is buying and selling these basic goods, which are used in everyday life. These goods can be anything from metals like gold -XAUUSD and silver to energy sources like oil and natural gas or agricultural products like wheat and coffee.
In commodities trading, people trade these items online using an online broker like Skilling. Keep reading to learn more about how it works and how to get started.
What does commodities trading mean?
Commodities trading involves buying and selling raw materials or primary agricultural products. These commodities can be grouped into two main categories:
- Hard Commodities: Natural resources that are mined or extracted, such as oil, gold, silver and metals like aluminium and copper.
- Soft Commodities: Agricultural products or livestock, such as coffee, wheat, cocoa, sugar, and even soybeans.
Traders engage in these markets to profit from price fluctuations or hedge against risks and it’s possible to trade them online. For example, one could trade commodities such as cocoa price and even coffee price online.
Prices of commodities are usually influenced by supply and demand dynamics, geopolitical events, weather conditions, economic indicators, currency fluctuations, and technological advancements. Additionally, speculative trading and market sentiment can significantly impact prices. For instance, a drought can reduce crop yields, driving up prices, while geopolitical tensions in oil-producing regions could lead to higher oil price due to anticipated supply disruptions. It is important to note that past performance is not indicative of future results, and investors should consider various factors and conduct thorough research before engaging in commodities trading.
Example of trading Gold online via CFDs
Scenario:
- Current market price: Suppose the current price of Gold (XAUUSD) is $1,800 per ounce.
- Leverage: Your broker offers a leverage of 10:1 for example. This means for every $1,000 you put in, you can control $10,000 worth of gold.
- Position size: You decide to trade 1 ounce of gold.
1. Opening the trade:
Buy (Long) position: You believe the price of Gold will rise, so you open a position.
Entry price: $1,800 per ounce.
Margin required: With a leverage of 10:1, you need only $180 to open this position ($1,800 / 10).
2. Price Movement:
Price increases: After some time, the price of Gold rises to $1,850 per ounce.
Profit calculation:
- Initial Value: $1,800
- Final Value: $1,850
- Profit per ounce: $1,850 - $1,800 = $50
If you close your position at this point, you make a profit of $50.
3. Example calculation with leverage:
Initial margin: $180
Profit: $50
Return on investment:
- Profit: $50
- Initial investment: $180
- ROI = ($50 / $180) * 100% ≈ 27.78%
4. Risk consideration:
Price decreases: If the price drops to $1,750 per ounce instead:
- Initial Value: $1,800
- Final Value: $1,750
- Loss per ounce: $1,750 - $1,800 = -$50
If you close your position at this point, you incur a loss of $50.
Stop-loss: To manage risk, traders often set a stop-loss order to automatically close a position if the price moves against them by a certain amount.
5. Summary:
- Leverage amplifies both potential profits and losses.
- Margin is the initial capital required to open a position.
- Pip movements affect the profit or loss in the trade.
- Spread is the cost of trading paid to the broker.
- Risk management tools like stop-loss orders are crucial to protect your capital.
Trading Gold via CFDs allows you to speculate on price movements without owning the physical commodity. Understanding leverage, margin, and risk management is essential to trading successfully.
YFIUSD: 00:00 - 21:00 UTC
NZDJPY: 00:00 - 21:00 UTC
Commodities trading platform: how to trade commodities
To start trading commodities like Gold, silver, Coffee and more with Skilling online, follow these steps:
- Sign up: Visit the Skilling website and create an account by providing your details.
- Verify identity: Complete the KYC process by submitting the required identification documents.
- Deposit funds: Fund your account using one of the available payment methods (e.g., bank transfer, or credit card).
- Choose commodity: Navigate to the trading platform and select the commodity (e.g., Gold - XAUUSD).
- Analyze the market: Use the provided tools and charts to analyze market trends.
- Place trade: Decide on your position (buy/sell), set stop-loss/take-profit levels, and execute the trade.
- Monitor position: Track your trade and adjust as necessary.
- Close trade: Close your position to realize profits or cut losses.
Ensure continuous learning and risk management.
Bottom-line
Skilling, an award-winning and reputable CFD broker offers a user-friendly platform for trading commodities like gold and other thousands of instruments like Cryptocurrency, Forex, etc. but remember to educate yourself continuously and manage risks effectively.
