As the world of online trading has rapidly grown over the last thirty years, the markets have changed and grown as well. Along with the many online platforms for forex trading, currency trading, stock sharing and various investments for traders the commodity market is a choice which more and more traders are looking at. There are two types of commodities; hard and soft. Hard commodities are defined as gold, silver and oil. For example ones which are mined. Soft commodities are classed as agricultural products such as wheat, coffee, sugar and cocoa.
The commodity markets help to define a price rate on the markets which is stable and secure especially those in future contracts. Commodity markets allow suppliers to lock the price in that they will essentially receive for their products at a future date, meaning the price is also at a fixed point for the buyer. There are many key factors which affect the commodity market. Read on to find out more.
Supply And Demand
As a prime example, think of oil in this case. If the supply of oil suddenly increases but the demand level stays the same then the price will subsequently decrease. If more people are using oil then the demand level increases but the supply levels stay the same then the price will increase rapidly.
Economical and Political Factors
Although the commodity market is based on future prices, economical and political factors have a huge factor in their price changes. As a prime example, political problems in the Middle East can cause a major uncertainty in the price of oil because this is where the supply comes from. Due to uncertainties the price will increase and decrease at an unknown rate.
Weather is a changing factor in harvesting products such as wheat and coffee. These produces are influenced by the weather, poor weather could result in a lower crop yield meaning the prices will increase.
The Dollar is The Main key
All commodity markets are priced in dollars and move along with the currency itself. If the dollar rises then it will apply pressure on the prices in the market meaning they will decrease. If the dollar falls then it has the opposite effect.
Currently there is over 50 commodity markets worldwide that have over 100 primary commodities ready to be traded.
Regulation of The Markets
In the United States of America there is commission called the Commodity Futures Trading Commission which regulate and follow the markets. Their main objective is to promote efficient and transparent markets as well as protect consumers from fraud, manipulation and mis-use. Currently commodity markets are kept in the spotlight because in 2014 four leading investment banks were caught up in a manipulation probe regarding precious metals.
In the United States the major exchanges are located in Chicago and New York.
The Chicago Board of Trade was founded in 1848. Some of the major commodities traded are gold, silver, corn, soybeans, wheat, oat and rice. The Chicago Mercantile exchange trades milk, butter, cattle and lumber.
The New York Board of Trade commodities include coffee, orange juice, sugar and ethanol. The New York Mercantile Exchange trades on the exchange commodities such as oil, gold, silver, copper, heating oil and propane.
As with all trading it is vital that you check up to date reports of the market and do the research before you begin to trade. Open up a demo account to get the hang of trading with commodities before committing yourself to a certain market or trading platform. Be prepared to deal with losses that could occur from economic or political disasters and other factors which could cause a commodity to decrease in price.
Work on a strategy and stick to it. Find one that works for you and don't be afraid to ask fellow traders for advice. Hire a mentor to give you the depths of trading and to give you a head start on your journey into the world of trading. If commodity trading isn't your thing then look at the Forex market which is currency trading or look at buying into company stocks. There is something out there for everyone.