Trade Commodities Online

Trade Commodities via an ASIC Regulated Broker

Commodities are key to economies as, without them, nothing could be manufactured or sold. Which is why the ability to trade them have been around for thousands of years. Test your commodity trading skills with FXTRADING.com on gold, silver, WTI or Brent CFDs.

A Primer On Commodities

In capital markets, commodities are the only physical items to be purchased and sold on an exchange. Usually (but not always) mined out of the ground or extracted from the sea, they sit at the beginning of the supply chain before being sold at greater values to producers, manufactures, retailers to consumers.

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This means commodities are a key inflationary input and explains why market participants keep close tabs on them; if inflation or deflation is to be anticipated, it can be seen with the rise or fall of commodity prices. In turn this helps them anticipate central bank policies whose key mandate is to control inflation.

The main groups of commodities include agricultural, energy and metals.

  • Agricultural commodities include corn, wheat, milk and coffee
  • Energy commodities include oil (WTI, Brent), natural gas and heating oil
  • Metals commodities include copper, zinc, platinum, gold and silver

 

Of course, these lists are far from exhaustive yet demonstrate the global reach and diversity of commodities.

Seasonality
Agricultural commodities are sensitive to the weather (think of the four seasons and what grows), whilst demand for heating oil tends to rise in winter and fall in summer. Gold prices tend to rise around Q4 as demand picks up around India’s wedding season and a weaker US dollar. These are just a few examples.

Supply and Demand Shocks:
A supply shock for crops could come in the form of a drought or flood and can send prices soaring. Whereas a recent example of a demand shock on oil prices was the Covid-19 lockdowns which triggered a collapse in oil prices as global trade ground to a halt.

Inverse correlations with USD
As commodities are usually priced in USD (the world’s reserve currency) they can share an inverted correlation with the dollar, so analysis of the dollar remains an important part of commodity analysis and trading.

How Does Commodity Trading Work?

Like all CFD products offered by FXTRADING.com, our traders are free to trade both long (bullish) and short (bearish) positions. However, by placing a trade, they do not become owners of the physical commodity as they are merely speculating on the direction of the underlying market. Yet CFD traders still get the advantage of live market prices.

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Furthermore, traders have great buying power via commodity CFDs. For example, where leverage of 100:1 is offered, only 1% margin (collateral) is required to initiate a trade, making it much more accessible to traders of all levels

 

Long example: Silver
A trader buys 1 contract of silver (5,000 ounces per contract) at $18.00

  • If the prices rise to $18.50 the trader could exit for a profit around $2,500
    • (# contracts x contract size) x (exit price – entry)
    • (1 x 5,000) x ($18.50 – $18.00) = $2,500
  • If prices fall to $17.50 the trader could exit for a loss around -$2,500
    • (# contracts x contract size) x (exit price – entry)
    • (1 x 5,000) x ($17.50 – $18.00) = -$2,500
  • A 1% margin requirement with 100:1 leverage requires $900 of capital
    • (# contracts x #contract size x price) / leverage
    • (1 x 5,000 x $18.00) / 100 = $900

 

Short example: Gold
A trader sells 3 contracts of gold (100 ounces per contract) at $1730

  • If prices fall to $1700 the trader could exit for a profit of around $9,000
    • (# contracts x contract size) x (entry – exit price)
    • (0.5 x 100) x ($1730 – $1700) = $9,000
  • If the prices rise to $1750 the trader could exit for a loss around $6,000
    • (# contracts x contract size) x (entry – exit price)
    • (3 x 100) x ($1730 – $1750) = -$6,000
  • A 1% margin requirement with 100:1 leverage requires $5,190 of capital
    • (# contracts x contract value x price) / leverage
    • (3 x 100 x $1730) / 100 = $5,190

 

Costs associated With Commodity CFDs

Spread:
The spread is the difference between bid-ask prices and is a nominal upfront cost to enter a trade. The spread is variable and is generally tighter during periods of higher trading volume (such as the US or European sessions).

Swap:
Swaps are an overnight holding cost and not too dissimilar to an interest rate on a loan. In fact, they are based on the interbank rate, which itself is used to set interest rates.

Calculated daily at market close, a nominal fee or credit will adjust the open balance of your trade. As they are calculated daily, 7 days a week, a ‘triple swap’ day will occur either on a Wednesday or Friday to account for the weekend.

Swap rates can be accessed within MT4’s “Market Watch” window, by right clicking over a market and selecting “specification”. Swap rate are variable and can be either negative (a charge) or positive (a rebate) depending on which market and its underlying intermarket rate.

Advantages of Trading Commodity CFDs

  • Trade bullish or bearish markets
  • Trade on margin
  • Hedge physical commodities, sectors or ETFs
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Trade Bullish or Bearish Markets
Commodity CFDs do not restrict your trading style in some ways that the underlying markets can. Futures exchanges limit the amount of orders, which means traders can be locked out of entering the market or, even worse, prevented from exiting an open position. This is not the case with CFDs as you can trade long or short, irrespective of what is occurring with the underlying market.

Trade on margin
With leverage of up to 100:1 on offer, margin requirements are low which provides greater purchasing power. Or another way to look at it, it is much cheaper to enter a market as only a fraction of the underlying market’s value to required to trade it, making expensive commodities for accessible to traders of all levels.

Hedge physical commodities, sectors or ETFs
If an investor specialises in, or has a certain proportion of their portfolio in, the oil sector they can hedge their equity exposure by trading an oil CFD in the opposite direction. So, if they are effectively long the energy sector, they could short a WTI or Brent CFD.

Likewise, investors could use a silver or gold CFD to hedge out exposure in the metals sector, whether they hold a group of metal mining stocks, ETFs or the physical commodity itself.

Why Trade Commodities with FXTRADING.com?

  • Competitive Spreads
  • No commissions on Standard Accounts
  • Low Commission on Pro Accounts
  • Trade multiple market from the same platform
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Competitive Spreads
We aim to keep our raw spreads as tight as possible to better facilitate your trading and keep your costs down.

No commissions on Standard Accounts
There are no additional charges to enter a trade beyond the spread. However, keep in mind swap charges (or rebates) may be applicable if holding overnight.

Low Commission on Pro Accounts
At just $7 per lot ($3.50 entry and exit) our commission charges remain highly competitive. Moreover, this allows us to offer raw spreads.

Trade multiple market from the same platform
Trade currencies, metals and oil all from our MT4 platform, across all devices.

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