Commodities form the foundation of world trade. They are raw materials or products which can be a product by itself or can be a source for other products. Thus, commodity covers a plethora of goods/products that can be agricultural (like wheat or soybeans), natural (like crude oil and minerals) animal ( like wool, meat), and also man-made like steel.
What are the advantages of trading commodities?
Which commodities to trade-in?
Consider the liquidity of a commodity or the ease of buying and selling that commodity while selecting one for trading. Look for better than average trading activity and increased demand and supply to find how liquid is the market for a commodity. A more liquid market is generally less risky for the trader as there is less slippage. More liquid commodities also see less drastic price swings.
What are the topmost traded commodities?
The topmost treaded commodities include the sectors of energy, agricultural products, and minerals.
1. Crude oil –
Crude oil is the most important commodity to cater to the energy market worldwide. The most important derivatives are fuels and other chemicals. The two important forms of crude traded worldwide are –
2. Natural Gas –
Natural Gas is the next most important non-renewable energy used for many purposes like cooking, heating, electricity generation, and also as vehicle fuel. The clean nature of this fuel is increasingly attracting more users.
3. Agricultural products –
They are the next most important commodity after energy needs. The most important agricultural products are –
4. Precious Metals –
5. Metals in manufacturing industries –
These metals form the backbone of industry and development. Though they are found more commonly, their value lies in the use in our everyday lives.
While it is relatively safe to trade in commodities, you should keep in mind that the price of the commodities is influenced easily. Geopolitical factors affect the production and pricing of natural products. An economic slowdown can affect the import of precious metals and hence cause a drop in the price. Similarly, in times of economic uncertainty, their price can increase as a safe investment. You must do your research and analysis according to your goals before you start trading in commodities.