Commodities Trading, guide for beginners
Published: 28 January 2021 by Andrew
Start doing Commodities Trading is difficult? Is it also suitable for beginners? How you do it?
In fact, commodity trading is an extremely profitable activity, it is normal for many beginners asking how to start without making mistakes and without risk.
Well, even beginners can do it, starting from scratch. It is often thought that only large speculators, with immense capital, are trading commodities.
All false: you can start trading Commodities with a very small capital (250 euros is usually more than enough).
In this guide we explain in detail what Commodities trading is, how you can get started without errors and which platforms are recommended for beginners.
We will talk, for example, about eToro. Why do we mention eToro immediately? True, there are various reliable trading platforms that allow you to trade with commodities, but eToro is definitely the simplest to use.
Indeed, eToro allows you to copy, in a completely automatic way, what the best traders in the world do.
In this way a beginner can get, from day one, the same results as the best traders in the world. And if he wants, he can also take the opportunity to learn trading by watching live what the greatest experts are doing.You can sign up for free on eToro by clicking here
Commodity Trading meaning
The word commodity refers to raw materials. We can consider as commodities non-perishable raw materials, easily transportable, which can be exchanged with standard prices.
In short, they are goods that can be easily exchanged without the need to actually verify the goods (as long as they comply with pre-established quality standards).
Examples of commodities are oil, metals, some agricultural raw materials: a ton of iron, after all, is always a ton of iron and its price is easily determined.
However, diamonds cannot be considered commodities. Each diamond has a different price that can only be established by observing it directly (even if there is actually the famous Rapaport price list that acts as a reference in some way).
Now that we understand what commodities are, let’s dive into the discussion of trading. What does it mean to trade commodities?
This guide is intended for retail traders who make money by trading on financial markets: trading on commodities means trading on financial contracts that have commodities as underlying.
In short, you don’t buy a barrel of oil or a lot of platinum: you buy a contract (called CFD) that has the same price as a barrel of oil.
Thanks to CFDs it is possible to do two operations: buy or sell short. If you buy, you make a profit when the value of the commodity goes up. If you sell, you make a profit when the value goes down.
CFD stands for Contracts for Difference because the profit of each operation is determined by the price difference between the time the operation opens and the time it closes (it does not matter if the difference is positive or negative). The profit from a CFD transaction can be further multiplied by applying financial leverage.
Platforms for commodities trading
The use of CFD contracts is quite simple and intuitive and there are many trading platforms that offer them. We have selected some of the best platforms for trading Commodities, choosing in particular the simplest ones to use, therefore also suitable for beginners.
Of course, the selected platforms are all extremely safe, reliable and commission-free:
Min. Deposit: 50€
Min. Deposit: 100€
Min. Deposit: 50€
Min. Deposit: 250€
Min. Deposit: 100€
72.30% of retail CFD accounts lose money
Min. Deposit: 250€
eToro is considered the platform of choice for those who start trading online. It is a very simple platform to use and which even allows you to automatically copy the best traders in the world.
How? Thanks to the innovative patented Copytrading system that supports the user in the search for traders who in the past have obtained the maximum profits with the minimum risk.
The user can select the traders he wants to copy and the software will replicate, in real time, all the operations of these experts.
In this way, the user has the opportunity to immediately obtain the same profits as the professionals and can also learn from them.You can sign up for free on eToro by clicking here
eToro is a complete trading platform: in addition to commodities trading, it also offers the possibility to operate on stocks, currencies, cryptocurrencies, indices.
Trade.com is the other great option for beginners who want to start trading commodities without mistakes and without scams.
The platform is particularly easy to use (extremely intuitive) and all subscribers have a real expert at their disposal to assist them on the phone.
Warning: we are not talking about a phone assistance service, we are talking about something that goes far beyond. We could define it as a free coaching service: the expert supports the beginner trader, explains everything you need to know to trade commodities (and many other assets) and provides him with valuable advice.
Personalized training and coaching services of this level usually have unaffordable costs, even 500 euros per hour. With Trade.com the service is free: you can sign up for the service for free by clicking here.
The advantages of Trade.com are not over yet: just to name another, it guarantees the possibility of operating with a demo trading platform. In practice, it is possible to trade with virtual money in order to accumulate valuable experience and get better results when you then start trading with real money.You can sign up for free on Trade.com by clicking here
Trade.com also offers the possibility to operate without commissions on a wide range of financial assets: in addition to commodities, also cryptocurrencies, forex, bonds and the stock market.
ForexTB is a real point of reference for beginners who decide to start trading commodities and other types of financial securities.
This Broker is very easy to use, even for those who have never traded in their life. In addition, it offers the possibility of being followed on the phone, step by step, by a true trading expert. Getting it wrong is literally impossible.
Anyone who wants to learn how to trade like a pro has the opportunity to download one of the best trading guides ever written for free.
The guide was a huge success: hundreds of thousands of downloads in a short time. This success is due, first of all, to the fact that the guide is completely free while others are paid (and cost a lot). Then it is a practice-oriented guide, while other guides are all theory.
Finally, it is a guide that even a beginner can study without problems, because it is written in an accessible language and without unnecessary technical terms.You can download the ForexTB guide for free by clicking here
ForexTB also guarantees the possibility of operating with a free, unlimited and unconstrained demo account.You can sign up for free on ForexTB by clicking here
Commodities Trading course
ForexTB is so famous and appreciated in the world of online trading because so many traders have learned everything they know thanks to its course.
Indeed the ForexTB course is truly a competitive advantage for those who want to start trading online as it is:
- Completely free, while the other courses are quite expensive
- Practice oriented, while other courses are often purely theoretical. Unfortunately, it often happens that the poor beginner trader who bought them (even paying a lot), after finishing the course does not even know where to start
- Without incomprehensible technical terms. Many paid courses seem to have the aim of confusing the student rather than explaining how to trade
- With the possibility of making immediate tests, thanks to the free and unlimited demo account offered by ForexTB
The truth is that the ForexTB course is one of the few that is truly useful. Paid courses are often written and sold by marketers who know very little about trading and who take advantage of the naïve to sell their courses.
Precisely for this reason they are very theoretical courses: in the end you can copy a little theory here and there, if you are not a trader you cannot invent practice.
The beauty of the ForexTB course is that it is free (you can download it by simply clicking here) because ForexTB does not have to earn by selling courses and has every interest in training its customers in the best possible way since it earns from the spreads of operations and therefore needs that the traders are successful to earn.
How to start commodities trading
What should a beginner do when he wants to start trading commodities? First of all, get rid of the idea that it is something complicated or suitable only for professionals.
With the tools we have available today, in fact, trading is accessible to everyone: the platforms are simple to use, there are free courses and it is even possible to automatically copy the best traders with eToro.
The key point is to choose a good trading platform, use it in demo mode for a certain period, and only eventually start trading with real money. How much money does it take to start trading commodities? All the platforms that we have presented in the article allow you to start with very small sums, usually 250 euros is more than enough.
It is also important to devote some time to study and study. The ForexTB course is very good and it is completely free.
Read also: 7 tricks for Trading Online
Commodities Trading Spread
When we refer to trading on commodities we cannot fail to consider the so-called “spread trading”.
What is it about? This operating methodology consists in investing in two related assets, opening two opposite positions. In this way, our net position will tend to be “neutral”, however with the right timing of entry, our profit will always be guaranteed despite market fluctuations.
Here is a concrete example: we open a Long CFD on Brent oil and a Short CFD on WTI oil. In this way, with the right spread between the two assets, our profit will remain constant. The price may go up or down, we will be relatively interested as we have a CFD for each market direction.
This technique requires a lot of practice, so we recommend starting with a Demo account, however once you understand the mechanism it will be much easier to invest in commodities. It is no coincidence that this method is also called “Relax Trading” precisely because it requires little time to start it.
What are the advantages of spread trading? Here are a few:
- Ease of use: just locate related commodities and trades open in minutes
- Hedging: By opening CFDs of opposite direction we will protect our investment
- Seasonality: in this context it will be possible to move by identifying the best raw materials each time to operate in a specific period
Curious to start trading with the Trading spread? Here is a free Demo account to invest:Open a free account on eToro here to operate with Spread Trading
Commodities Trading: the most negotiated Assets
What are the most traded commodities on the markets? Given the vast offer, it is advisable to identify the most famous as they are also those that have the lowest spreads in the various trading platforms.
Here is a complete review.
Considered the raw material par excellence, black gold is a highly traded asset by traders from all over the world, especially due to its seasonality. Buying Oil is therefore a great way to diversify your portfolio.
Furthermore, oil is characterized by very broad and marked trends. Opening medium-term deals could guarantee excellent profits. Suffice it to say that in recent times, due to the Coronavirus, the price of crude oil has dropped from $ 60 to $ 20. A free fall that has made the fortune of all those operators who have entered the market with a Short CFD.
Often at the center of power struggles between OPEC and other producing states (Russia and the US above all), oil continues to be a primary asset for the global economy.
The yellow metal is defined as the safe haven asset par excellence. What lies behind this label? Well, historically gold is a precious value and even in post-bretton wood it has continued to play a central role in the economy of the states.
This intrinsic value allows gold to be considered an asset to be purchased in times of crisis or global uncertainty (just like in the time of the Coronavirus) to defend the investment portfolio. Not surprisingly, in difficult times for the global economy, the value of gold tends to rise.
Basically, you can invest in gold to diversify your portfolio (as well as in silver) or, with a more speculative purpose, to obtain profits following the fluctuation of its price in times of global crisis. Not surprisingly, after 2008, the value of the yellow metal exceeded $ 1,000 an ounce.
Another very seasonal commodity, during the winter it tends to see the price rise sharply. One of the largest producers of this fossil fuel is Russia. It follows that in winter many European countries import this raw material from Russia, to satisfy the need for heating in the colder months.
Unlike oil, natural gas is “clean” so more and more governments are betting on this resource to diversify their dependence on oil.
The most seasoned investors love to trade this asset precisely because of its cyclicality that makes it “predictable”, resulting in ease in launching successful trading operations.
Silver is a shiny white metal with several extraordinary characteristics. It is malleable, and beautifully polished. Silver is also highly reflective and conducts electricity very well. It also kills bacteria.
All these characteristics make silver a precious metal in a wide range of industries, including jewelry, electronics, energy and medicine. Yet these characteristics only scratch the surface of why silver is important in the global economy.
Silver is very rare and, together with gold and six metals from the platinum group, belongs to a group known as precious metals. For thousands of years, people have bought silver as an investment and as a store of value.
Silver is rarely found in the earth’s crust as a native element. Instead, miners usually find the element as a by-product of the extraction of lead, zinc, copper or gold. Recent silver production has declined following the decline in lead, zinc and gold production.
Silver is a volatile commodity that reacts to both industrial and economic data. These factors are the most important factors that determine the price of silver: the supply and demand for silver scrap metal of industrial metal scrap inflation of industrial demand and gold prices in US dollars.
Even during a crisis, people still need cocoa, coffee or sugar. The consumption of these products continues despite the global crises that may occur. This is different from commodities like oil and gas. The supply and demand for raw materials such as cocoa, coffee and sugar remain relatively stable compared to these raw materials.
Gold and silver are available in smaller quantities and the offer has a direct impact on the market. This is not the case with cocoa. You do not suddenly discover a forest for cocoa plantations that suddenly doubles the supply and lowers the price. This means that cocoa prices will never be as volatile as those of precious metals or cryptocurrencies.
As a commodity, soy is omnipresent in the American food supply. Soybeans appear as protein-rich flour in processed foods, vegetable oil and flour for animal feed. Furthermore, various forms of fermented and prepared soy are the cornerstones of many Asian diets. One ETF that tracks the price of soy is Teucrio’s Soybean (SOYB).
This fund is designed to reflect the daily changes in the weighted averages of the closing settlement prices of the three soybean futures contracts traded on the Chicago Board of Trade (CBOT). It normally uses direct investments in such futures contracts, but may also invest in options on exchange traded soy futures contracts or soy based swap contracts.
While soybean demand remains high around the world, soybean production has more than met demand, driving prices down. Therefore, the price is down by 3.49% for the year. We recall how drought is the main factor that impacts the price of soy.
Platinum is the third most traded precious metal in the world and the most commonly traded commodity of the platinum group metals. It is widely used in a variety of industries, and in recent years high demand and low supply have pushed the platinum market into deficit.
Prior to this year, the price of platinum had fallen by 50% in five years, but recent rallies have shown that the precious metal is recovering.
Although the price of platinum remains below $ 1,000 per ounce, many investors are hopeful about platinum’s prospects within the precious metals market, and are eager to learn how to invest in platinum.
Most investors are probably not looking for the ultimate guide to investing in wheat, but there is a reason they should. Investing in agriculture is relatively sound in the long run.
Everyone needs to eat, and all the things people eat come from farms. Nobody thinks about it when you go to the grocery store, but raw materials are one of the lifebloods of the economy, wheat in the first place.
Regardless of whether the economy itself is up or down, things like wheat are necessary and are always processed for bread and many of the other food products that consumers buy.
The fact is this. There are no publicly traded companies that deal exclusively with wheat. It’s not as simple as finding a great baker or cereal maker and calling it a day. Other products such as whiskey offer this opportunity, but it didn’t happen overnight.
Even if not everyone knows what it is, Nickel is a really interesting metal with multiple qualities. Although less famous than some other metals, modern industry is in great need of this commodity.
Its importance in the modern economy mainly concerns its use in production processes related to other products. For example, it is essential to produce stainless steel and is used to make some types of rechargeable batteries that are increasingly in demand.
The main reason why so many people and organizations buy and sell nickel is because it is widely used in key sectors of the industrial economy: it is about 10% part of stainless steel and is widely used in rechargeable batteries.
Chemically, it melts at very high temperatures and acts as a catalyst for numerous production processes. It is very bright, ductile and magnetic, one of the most used materials in modern industry.
This metal has become an indispensable product and for this reason, investing in Nickel can be very profitable.
This metal is famous for its qualities as a conductor of electricity, in fact it is widely used in electrical systems all over the world but copper is truly versatile and its characteristics make it one of the most sought-after metals on earth.
If we think about how many things are done with copper, in addition to electric cables, we remember not only domestic ones but also industrial ones, the automotive sector and any other electrical or electronic product; there are pipes, antennas and building elements that take advantage of the durability of this element in addition to corrosion resistance.
Some coins are also made in copper all over the world, its uses are almost infinite and even if it is widespread underground, like all metals, it is not infinite, so its value is destined to grow also due to the increase demand and supply shortages.
For this reason, investors are keeping an eye on it and trying to evaluate the best trading strategies for investing in this incredible metal.
A metal that is part of the so-called rare elements, similar to platinum although less known and little used in jewelry. Palladium is rarely traded in ingots as is the case with its cousin of the same color, platinum.
The value of Palladium is mainly linked to the automotive and combustion engine market. In fact it is an indispensable catalyst in the realization of the famous catalytic converters.
In addition to mufflers, this metal is essential in some chemical processes and is also used in the dental sector.
Palladium is less known than other precious metals but its value is high even if it is heavily influenced by the demand for cars.
Given its rarity, it is now under the radar of investors who know how much it could grow as it tends to become scarce and at the same time the production of cars and combustion engines will increase, which despite the electric alternatives, still dominate the markets.
Certainly when you think of sugar, financial markets do not come to mind but sweets and carbonated drinks, yet precisely because of its enormous diffusion in the food industry it is one of the most traded commodities in the world.
Before the spread of sugar cane and beet cultivation, sugar was a luxury that few could afford. But now that it is used so widely, its value tends to rise over time.
What we commonly call sugar actually includes fructose, lactose and sucrose, which are all carbohydrates contained in food.
Sugar is traded with Sugar Futures, which can also be traded through CFDs and the high number of trades involving this commodity derives from the wide use that is made of it around the world.
It is not only a raw material but also a very valid economic indicator, which can indicate the difficulties of an entire country or the demographic increase of a nation, which tends to consume more sugar.
The demand for sugar is constantly growing also because well-being leads to the consumption of more sugary foods and drinks and consequently this raw material increases in value.
Cotton is synonymous with natural fabric and everyone knows it mainly in that form, but it is still a plant and is considered a commodity because it is a fundamental element of the textile industry and beyond.
This raw material grows in tropical areas almost all over the world and its origins as a fabric are very ancient.
With the industrial revolution, the production of cotton fabrics has undergone a dizzying surge and this has led to an increase in the value of cotton in world markets.
For a long time it has been tried to replace it with synthetic fabrics but its “natural” properties are unique and no other artificial fabric has managed to match them.
The demand for cotton in the world is always increasing and the arable areas are not infinite, so investors believe that the price of cotton in the global markets is likely to grow steadily.
Despite being very abundant, the most widespread metal on earth, it is also in great demand in many fields, so aluminum is always an interesting investment.
We know that it does not have the charm of precious metals but its value is given by its unique physicochemical characteristics.
Its use, mainly industrial, is relatively recent compared to other metals, but its lightness and resistance, combined with the anticorrosive properties have quickly transformed it into one of the most versatile materials ever.
The objects produced in aluminum are many and this metal is part of the production processes of the automotive, air and renewable energy industries.
Investors love to trade aluminum also for its high volatility, the price of aluminum varies constantly due to the supply and demand of the industrial sectors to which it is linked; and these fluctuations generate incredible speculative opportunities.
Commodities Trading Conclusions
Commodities are a very profitable financial asset and also suitable for beginners. In this guide, we have explained which platforms are really worthwhile to use to trade commodities and we have also illustrated the ideal path to success.
For those who trade online, keeping an eye on commodities is a way to take advantage of particularly favorable market conditions that, from time to time, occur.
They are raw materials with a standardizable price, non-perishable, transportable.
Usually, the best solution is to use CFDs (contracts for difference). The price of the CFD on a commodity is always the same as that of the commodity itself. They can be used to buy or sell short (to make money if the price goes down).
If you have the intelligence to choose the best platforms, you can operate with a capital of just 250 euros (sometimes even less).
Study (there are great free courses like ForexTB), try trading in demo mode and finally start trading with real money.