Traders can trade CFDs on commodities just like other instruments in the financial market. It can be highly beneficial for the investor, as they can speculate on price fluctuations and movements without owning the actual underlying asset.
With CFD trading on commodities, one can use leverage where traders can take positions that are larger than their trading capital. Also, this can potentially increase profits and losses at the same time.
CFD trading on commodities can be risky as it requires accurate speculation, knowledge, and market experience Let us look at CFD trading and how it can help investors planning to trade commodities.
What is Commodity trading?
Commodity trading involves buying and selling primary products or raw materials such as natural resources, energy resources, metals, agricultural products, and others. Physical commodity trading is the buying and selling of the actual underlying assets while derivative commodities are traded in futures and contracts for difference (CFD).
However, there are various commodity CFD trading risks such as natural disasters, and change in supply and demand that can affect the prices of commodities and allow traders to take advantage of them.
What is CFD trading?
CFD or contracts for difference is a process of trading derivatives, where traders can take advantage of price movements of assets without actually owning them. They can profit from the movements of stocks, commodities, currencies, and prices of other financial instruments.
For trading commodity CFDs the investor should agree with the broker or the online trading platform. They can benefit from both upward and downward price movements based on the direction the market is going.
CFD trading is more flexible compared to traditional trading where you can explore several markets, tools, and platforms and you have to open an account on a commodity CFD trading platform.
Here are the types of commodities traded in different markets
- Agricultural commodities – These include, corn, wheat, soybeans, coffee, cotton, sugar, and other raw materials used for beverage and food production.
- Energy Commodities – This can include natural gas, crude oil, gasoline, and fuel for other industries.
- Livestock commodities – Livestock includes cattle, hogs, and others used for meat production.
- Metal commodities – The metal commodities are gold, platinum, silver, and copper used for jewelry production, industrial applications, and electronic manufacturing.
- Industrial Metals – These metals include zinc, nickel, aluminum, and copper and they are used for manufacturing and construction.
- Soft commodities – Soft commodities include coffee, cotton, sugar, and other food products.
What are the benefits of trading CFDs on commodities?
- Low cost in the transaction – Trading CFDs on commodities requires low fees and costs compared to traditional trading. In CFD trading, the investor takes advantage of the derivative product and not the physical commodities.
- Access markets easily – Trading CFDs on commodities is easier for traders as they can access several markets. Beginners who do not possess the expertise to trade physical commodities by themselves can benefit as well.
- Flexibility – You can trade Commodity CFDs in a wide range of platforms and take both long and short positions for it. It means you can benefit from both rising and falling prices.
- Diversify your portfolio – Trading commodity CFDs can be in your favor for profits because it is can be a great tool for diversification of your portfolio.
- Leverage – Investors can use leverage and control larger positions with smaller amounts of capital. With leverage on commodity CFDs, you have a chance to earn larger profits.
What is the Commodity CFD trading risks?
While there are several benefits of trading commodity CFDs, investors are also prone to high risk while trading under rising and falling markets. Here are a few risk factors to know beforehand. They can be affected by market risks which may include factors like weather patterns, geopolitical data, and economic data resulting in losses for traders.
Many investors trade commodity CFDs with leverage which can increase their profits and maximize their losses as well. Also, sometimes there can be limited liquidity in the CFD market for certain commodities and that can create difficulty for buying and selling positions at a specific price.
Lastly, there are regulatory and technical risks as commodity CFDs are subject to regulations that can change and be adjusted with the market’s impact. The technical risks can include system failures, cyber-attacks, and glitches which may disrupt your trading activities, and you may incur losses.
Final Word
Commodity CFD trading is for beginners and investors of all levels. It has several advantages but one should also consider the risks involved. To trade commodity CFDs, one needs to stay up-to-date and learn from the available education materials on NAGA.
NAGA offers several account types alongside a user-friendly interface; mobile trading and its copy trading features help traders with trade within a full industry-driven and fully-regulated environment trading environment. Trade commodity CFDs with NAGA today!
Disclaimer:This information is not considered investment advice or an investment recommendation but is instead a marketing communication.
