What Is Commodity Trading?

Technological advances of recent decades have opened financial markets to the public. Today, any resident of Nigeria and South Africa may trade stocks and currencies through the Internet. This does not require a physical exchange – everything is managed via software. Commodities are traded as part of CFDs, and profit potential is impressive.

Office jobs are a relic of the past. This year, when COVID-19 has caused so many companies to go under, remote work is in demand. International brokers provide an opportunity to make money online from any device. Knowledge of the commodities market can be easily monetized through platforms and apps.

What Are Commodities?

If you are not familiar with the term, here is the definition from Investopedia. These are goods “interchangeable with other commodities of the same type.” Typical examples are crude oil, wheat, gold, and silver. Prices for these resources are defined by market forces regardless of producers. Commodities often serve as raw materials. Just think of the sheer number of items containing crude oil!

Commodities may be sold directly, which is the realm of institutional trades. Retail traders may capitalize on these assets via CFDs. This indirect scheme is more accessible and affordable.

Evolution of Commodity Trades

Humans have been exchanging agricultural produce, energy, and metals for centuries. Even  Ancient Egyptians sold their resources abroad. In the past, transactions were straightforward –  they included an exchange between buyers and sellers. Then, futures appeared. These derivatives allow holders to buy or sell a commodity at a fixed price and time. They require significant investment.

Now, the commodity trading market is frequented by speculators and day traders. CFDs, or Contracts for Difference, represent a new generation of derivatives. These are entirely virtual and more convenient than other instruments. In addition, they may be traded on margin through brokers like FXTM. Here is an in-depth commodity trading guide that will help you out.

Fundamentals of CFD Trading

Traders of the past were not allowed on the market without sizable investments. CFDs, on the other hand, give affordable entry. They require only moderate deposits – contact your broker for conditions in your area.

CFDs are virtual agreements. Their subject is the price for the underlying asset. Aside from commodities, the tool may be tied to stocks, market indices, crypto coins, etc. Changes in the value of the asset define changes in the value of CFDs.

An important benefit is the absence of physical ownership. This makes the instrument progressive. No barrels of crude or tonnes of wheat will change hands. Whatever the asset, its price is all that matters.

Key Advantages to Consider

CFDs are profitable on their own, as long as traders have sufficient skills and knowledge. The second application is as part of diverse portfolios. In this case, profit from CFDs compensates for losses made from other instruments – e.g., currencies or stocks. Other benefits include the following:

1.    Trading on Margin (Leverage)

Brokers allow their clients to open positions for more than they deposit. The intermediary provides a portion of funds to boost their purchasing power. For instance, a 1:100 ratio means you may trade $100,000 worth of CFDs with just $1,000 on your balance. However, as risks also rise, the tool must be used with caution.

2.    Any Trends Can Bring Returns

In many ways, CFDs on commodities function similarly to currency pairs. Traders can profit from any trends if they anticipate them. For instance, if the price of the underlying commodity is likely to rise, you can purchase more lots and capitalize on the surge. In the opposite scenario, traders sell their CFDs and buy back more lots for less money. Buying low and selling high is every stock trader’s mantra. It is also perfectly applicable to CFDs.

Trading Commodities in Africa

Now, many global brokerage brands recognize the potential of the continent. Online Forex trading is booming. CFD on commodities is one of many financial instruments that may be traded online. Virtual derivatives do not require ownership. They are also more affordable than any physical assets. As a consequence, CFDs allow locals to build diversified portfolios and hedge risks.

Master commodity trades and discover more types of underlying assets. Choose markets you know best and turn your foresight into profit. While CFDs exist online, financial returns are tangible. If you already have a Forex account, switching is easy. Many trading platforms and apps (such as MetaTrader 5) allow the management of several assets.