Trading commodities online

The analysis plays a major role in stock market investment. Learn how to make your own technical and fundamental analysis with our explanations.

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Trading commodities online

The exchange rates of the main commodities

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The online brokers are increasingly numerous in offering their clients the opportunity to trade in commodities, using financial instruments such as CFDs. For the investor, it is clear that this range of assets offers certain advantages not available through other investment products.


What is the commodities market?

The commodities market is, as indicated by its name, a retail and wholesale market dedicated to the trading of commodities. The term ‘commodities’ covers natural resources used by industry which transforms them into finished or semi-finished products.

This can be components or fuel resources that intercede in the production cycle of a product.

The buyers and sellers therefore trade these commodities through this market using buy and sell orders.


The function and organisation of the commodities market:

The commodities market unites two major types of participants as follows:

  • The producers
  • Financial institutions, investment companies and individuals

Over the last few decades the majority of commodities trades completed on this market are with derived products such as forwards, futures, options, warrants or swaps. These transactions are completed either through organised markets or on the OTC market, or Over the Counter market.

The organised markets are the stock markets and futures contracts markets. The trades are standardised according to different criteria such as the quantity, quality or payment for the derived products. A clearing house is responsible for checking the solvency of the buyers and sellers for margin calls and limiting the risk of default on these markets.

The OTC, or Over the Counter market is a place where transactions are concluded directly between buyers and sellers without any exterior intervention. There are therefore no standardised operations but it offers more flexibility to the different participants.


The quotations of commodities on the stock markets:

Auction transactions no longer really exist on the commodities market which is nowadays just about entirely electronic and paperless.

The vast majority of trades are made through the CME group which incorporates the CBOT or Chicago Board of Trade, the NYMEX, or New York Mercantile Exchange, and the COMEX, or New York Commodity Exchange.

This is the largest stock market that trades in futures contracts and offers the largest choices of futures contracts on commodities.

However there are two other markets where commodities are traded but to a lesser degree. These are the LME, or London Metal Exchange, and the ICE, or Intercontinental Exchange, previously known as the NYSE.


Why trade in commodities?

Forex brokers had a good reason to implement tools enabling the trade of commodities. It can prove highly judicious to speculate on these assets as commodities are among the most profitable assets on the market.

It is notably due to a strong expansion in industrialised countries such as China or other Asian countries, that commodities have been able to significantly increase their value over the last few years.

However the advantages of speculating on commodities do not stop there. In fact it can be noted that some commodities such as precious metals, sometimes play the role of a refuge value role for investors, notably due to points stated earlier. A fall in the supply and a rise in the demand actually offers highly interesting opportunities for investment over the long term.

Due to this fact, when the traditional financial markets experience a decline, numerous traders invest hugely in commodities and thereby force the prices to rise.


Which commodities can be traded online?

Among the different commodities that are speculated online, we find several defined categories: 

  • Precious metals such as gold, silver, palladium, zinc or nickel.
  • Fuels such as oil, natural gas or charcoal.
  • The agricultural commodities such as coffee, sugar, corn, wheat, soya, cotton or, more generally speaking, cereal crops.

Of course, it is mainly gold and silver that attract the highest volumes of online investment, even if the other products also prove to be interesting and profitable.


How to trade commodities using CFDs:

Different to stock investments, CFDs enable you to speculate on an asset without having to actually buy it. These contracts, called ‘Contracts for Difference’, operate in exactly the same way as for trading currencies as they relate to taking a rising or falling position on the market at an exact given time in order to make profits at the time when the positions closes or ends.

Furthermore, these indicators that enable you to determine the direction that a commodity price will probably take are often numerous and highly pertinent. This could relate to the value of the U.S. Dollar which is the currency used to quote the price of assets or maybe the weather conditions, natural catastrophes or international reserves.


How to speculate effectively on stock market commodities?

Now that you know how to invest on commodities on the stock markets using CFDs you need to know how to correctly anticipate the price movements of these assets. To do so there exist two distinctly different but complementary methods:

  • Technical analysis: This is based on chart indicators and enables you to anticipate future trends and specific movements of the market through the emission of buy or sell signals. Although the majority of brokers provide free trading signals we recommend you learn the basics of technical analysis to better understand the markets.
  • Fundamental analysis: This is based on exterior events that influence the prices of commodities. These can be economical, financial or meteorological events.


The opening times of the commodities markets:

Let us first look at the opening hours of the financial markets on which are quoted the major commodities. In fact, it is during these times that the prices are the most volatile as numerous investors are connected and take positions. It should therefore be noted that the opening and closing times of these are potentially particularly profitable. Here therefore are the market quotation times:

  • The fuel commodities market for gas and oil among other assets is open from 00:05 (00.05 a.m.) to 22:55 (10.55 p.m.).
  • The precious metals market which includes gold, silver, copper and palladium is also open from 00:05 (00.05 a.m.) to 22:55 (10.55 p.m.).
  • The market for the other metals on the stock markets such as zinc, aluminium and nickel is open from 02:05 (2.05 a.m.) to 22:55 (10.55 p.m.).

Please note that these markets are open from Monday to Friday during these hours but are closed on Sundays.


When can you speculate online on commodities?

The opening times of the markets that we have stated here are only for informational purposes as you can in fact trade continuously, 24 hours a day, 7 days a week, on these commodities. Even though the markets are officially closed on Sundays and outside their opening hours the trading platforms still enable you to take position anytime on these assets.

It should however be noted that trading during the closed times of the commodities market is a little more risky but can also be more profitable, particularly with binary options that can offer a higher profitability.


When is it best to trade in commodities?

Certain times are far more preferable to others for trading in commodities. Therefore, and as we explained earlier, the opening and closing times of the markets are a good example as the volatility is particularly strong at those times.

This also goes for the publishing times of certain fundamental indicators such as the interest rates for the American dollar or the publication of American oil stock figures which particularly influence the price movements.

It is therefore important to carefully choose the times that you choose to speculate on commodities to maximise your chances of making profits.


Why is technical analysis vital for commodities trading?

Commodities are particularly interesting assets due to their high volatility. These assets in fact react strongly to announcements as well as speculative phenomena on the markets. Due to this fact the principal technical indicators are often highly effective for anticipating the movements in commodities prices.

In fact the vast majority of traders that speculate on commodities base their strategies on technical analysis. By doing the same you too can benefit from expected rising and falling movements that come to fruition most of the time.

Important! As previously stated, commodities also react strongly to fundamental data. Therefore, your technical predictions could be influenced if a major event is expected. In the case whereby this event or its consequences coincide with your technical forecast this can double your chances of a correct prediction.


How to complete a good technical analysis of commodities?

The technical analysis of commodities is undoubtedly one of the simplest that exists due to the strong volatility of these assets. The trends are often easily discernible and long lasting.  

This is the reason why we highly recommend that you opt for simple technical indicators such as the pivot points, the support and resistance levels and the Bollinger Bands. You can choose to display these indicators directly on the charts available through your broker.  

Also, carefully choose your chart timelines according to your trading horizon, this means charts in minutes for short term trading and charts in days for longer term trading.


Making price predictions based on technical analysis:

Technical analysis is the most popular method as well as the most certain for making price predictions on commodities. Commodities are actually highly speculative assets which means that their price can vary greatly depending on the actions and reactions of the traders on the market.

The technical signals observed on the stock market charts of these commodities are easily recognisable entry and exit points that leave little room for error. This is why it is extremely important to be able to identify these indicators to manage and profit from your market positions.

The technical indicators to favour for anticipating movements in the price of a commodity are:

  • The support and resistance levels
  • The MACD
  • The moving averages
  • The Bollinger Bands

These indicators can be displayed directly on your charts available through your CFD broker. You simply need to master the reading and interpretation of these to reap their full benefits.  But if chart analysis is not your strong point then you will be pleased to know that effective trading signals can be found on the majority of brokers websites that are based on a technical analysis of the markets.


What is the fundamental analysis of commodities?

Technical analysis consists of the interpretation of charts and statistical data to predict the direction that an asset price will take. Fundamental analysis however uses economic data to predict the movement of the markets.

Therefore, the fundamental analysis of commodities is the study of the relationships between the price of an asset and related economic fundamental data such as unemployment, inflation, growth or even an interest rate.

We actually know that these economic fundamentals change and evolve over time due to geo-political events or economic decisions. And these changes strongly influence the prices of the major commodities. It is therefore imperative to know how to interpret this data in order to use it to successfully identify rising and falling signals in the prices of these commodities and thereby take the best positions at the right times. 


The most influential fundamental data on commodities:

There is a lot of fundamental data available that you can use to analyse commodities prices. Here listed is the most useful information on these carefully selected for you to follow closely:

  • Inflation: Commodities are positively correlated to the inflation rate at all times. This means that when inflation increases the price of commodities also increases and vice versa, traders in fact use commodities purchases as a form of protection from inflation.
  • Economic growth: Similar to inflation the economic growth is correlated with the prices of commodities. In fact, when a country is undergoing economic growth it uses more commodities which thereby increases demand and increases the prices and, on the contrary, when growth is weak the prices of commodities fall.
  • The interest rate: An increase in the price of commodities tends to cause an increase in the interest rate which leads to a drop in the price of bonds.
  • The consumption of certain activity sectors: Depending on the commodity that you trade it will be important that you monitor the economic activity of the sectors that use it most and which will have a major influence on price movements.


Making price forecasts using fundamental analysis:

The ‘fundamental’ data is also very useful for the completion of price predictions for commodities. These are the economic events that could influence the purchase or sale of commodities and therefore logically cause a price change over the short term.

stify:inter-ideograph; line-height:normal;background:white'>Therefore, the fundamental analysis of commodities is the study of the relationships between the price of an asset and related economic fundamental data such as unemployment, inflation, growth or even an interest rate.

We actually know that these economic fundamentals change and evolve over time due to geo-political events or economic decisions. And these changes strongly influence the prices of the major commodities. It is therefore imperative to know how to interpret this data in order to use it to successfully identify rising and falling signals in the prices of these commodities and thereby take the best positions at the right times.


Start to invest in commodities:

Commodities can now be traded online like the majority of other assets, particularly with online trading platforms through Forex brokers. You can in fact use CFDs to invest in these assets.