Commodities are raw materials that can be bought and sold for manufacturing various essential products. These include metals, oils, natural gas – anything mined or harvested on the earth. The world commodity price index shows you how these prices fluctuate daily. For example, early this year (Jan 17), the cost of copper was $6,538 per ton. By Jan 24, it had gone down to $6,349 per ton. Some things have stayed more or less stable, though- gold currently sits at around $1,200 per troy ounce.
On-exchange and off-exchange
Off-exchange is known as Over the Counter (OTC) and only involves two parties. An OTC transaction does not occur through an exchange, where bids and offers from multiple buyers and sellers come together to determine a price. Instead, it involves direct negotiations between two parties who agree on a price for a product such as crude oil or corn. It is common for commodity swaps to be traded this way when two parties want to bet on whether one particular commodity’s value will go up or down without exchanging the physical commodity. They trade contracts instead.
OTC
OTC is used frequently for agricultural products because of the unique nature of their supply and demand. For example, pork bellies are a popular agricultural product for trading. The product has to go through several hands before it gets to the end-user. There are processors, packagers, distributors and retailers involved in the chain, all of which want to profit. It means that the price of pork bellies doesn’t simply change based on current production levels and inventories but on expectations of where prices will be in the future.
There is a lot of money to be made if you successfully trade commodities online- they work in much the same way as stocks. It’s important to understand that when you trade commodities online, you are doing business with institutions – this is not for the amateur investor. You’ll need to read up on market news before you even think about looking into buying or selling futures.
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Gold
You can buy gold in much the same way as you would any other commodity- there are CFD providers who will let you purchase a contract for differences (CFDs) on gold. It means that if the price of gold goes up by the time your contract expires, they will pay out this difference to you. However, they’ll charge your account for this loss if it has gone down by then. The contract lasts for just one day- so be careful when trading commodities online through CFDs because you’ll need to pick an expiry time carefully.
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CFDs
You can also buy contracts for differences on certain shares of the biggest gold mining companies- so if you think that they will go up in value, then this might be an excellent way to invest.
Online trading
Trading commodities online is a risky business – it has attracted new traders, with unregulated brokers acting as middlemen between buyers and sellers. However, paying attention to market news could give you an edge over other traders. It would help keep your eye on political developments in countries where these raw materials are mined. These may affect the price of what you’re buying or selling, so always do your homework first before pouring any cash into trading commodities online.
Coffee
When trading coffee futures, you’ll need to be aware of the Robusta and Arabica market price. These varieties are used in espresso coffee, although they sell at different prices. You will also need to look at the size of the contract you are trading- whether it is a ton or a hundredweight. It could affect your profits, so work out what kind of investment base you are working with before trading commodities online through futures contracts.
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Bottom line
There’s plenty of money to be made when trading commodities online – but make sure that you do your research first because not all brokers can be trusted. Visit this site to find a world renowned broker for commodity, forex, and stock trading.
