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    What is Commodity Trading

    Commodities make the financial world go round, whether we’re talking about electronics manufacturers relying on raw copper and nickel for their components, steelworkers buying up iron ore, or a major fashion brand awaiting a major wool shipment from overseas. It’s the trading of these commodities that provides opportunities for both spot and CFD trading.
     
    What is commodity trading?
    A commodity is a primary product that is often used in the creation of goods or services. This could be a hard commodity, which is typically mined, or a soft commodity, which is typically farmed or grown. Commodity traders traditionally trade either physical goods or funds for these goods, however a Contract for Difference (CFD) trade enables investors to speculate on the price movement of key commodities using just a fraction of the outlay of spot commodity trading.
     
    What are commodity futures?
    The quality and quantities of raw goods can vary, which is why commodities are standardised into units (for example troy ounces for gold, or bushels for wheat) that must meet a basis grade to be acceptable for sale. Commodities are typically traded through ‘futures’ on a futures exchange, which means that the buyer and seller agrees to exchange a set amount of the good at a set time and set price in the future, in order to lock in the agreed-upon value.
     
    How CFD commodity trading works
    A commodity symbol represents a set number of units, with the bid price indicating the value that you can sell (or go short with), and the buy price indicating the value that you can buy (or go long with). A Contract for Difference trade is an agreement between a trader and a broker to exchange the value between the trade’s opening and closing price, which could be either a profit or loss. CFD traders can use leverage to magnify the power of their trades, where the majority of the trade position is provided as a sort of temporary loan from the broker. Leverage is commonly 1:100 or 1:200 for commodity CFDs, for example. This can increase both the returns and risks experienced by CFD commodity traders. One of the most attractive advantages of CFD trading is that a trader can speculate on the price moving either up or down, potentially profiting if they can predict that movement accurately.
     
    If you are ready to make your first commodity trade on gold, oil or cotton and experience CFD trading for yourself, you can sign up for a free demo account for ForexCT in minutes.