Benefits & Differences : Commodities & Forex

Commodities broadly refers to materials and produce.There are actually a large number of ways to invest in commodities. These could include the futures market, purchasing options on futures contracts, actual commodities, commodity ETFs or Exchange Traded Funds, and purchasing stocks of commodities-focussed companies. How do commodity traders make money? The commodities futures market is where they deploy their strategies. On the other hand, The foreign exchange market is the largest financial market globally, with a daily turnover of about 5 trillion dollars. The rules of day trading can be applied to any market, whether it is the stock, futures or foreign exchange market, with each of the markets having some small peculiarities. The foreign exchange market is particularly suitable for beginners with small accounts. Benefits & differences - commodities & Forex. Which suits you best?

How to Trade CFDs on Commodities?

One of the best ways to trade commodities is CFDs.

A differential contract (CFD) is a contract between a trader and a broker to exploit the price difference between trade opening and closing.

Investing in raw material CFDs saves you the discomfort of paying for raw material storage, as so happens with physical delivery. Trading in commodities using CFDs permits you to go long or short without the hassles of dealing with traditional commodity exchanges, such as CME, ICE or NYMEX.

Furthermore, CFDs give us the chance to trade raw materials in both directions. Regardless of if your assessment of the commodity price forecast is positive or negative, you can try to take advantage of rising or falling future price movements.

Moreover, commodity trading with CFDs, more often than not, contains no commission. Brokers make a minor profit from the spread, while traders try to profit from the overall price change.

Another benefit awaiting you is that CFD is a leveraged product. For instance, a recommended broker offered 10% margin (the number may vary depending on the commodity and the CFD broker). You only need to deposit 10% of the total value of the trade you seek to open. The remainder is covered by your CFD provider. In case you want to place an order for a particular commodity worth $ 1,000 and your broker asks for a 10% margin, you will only require $ 100 to open that trade.

Different approaches : commodities & Forex

How are commodities traded?

Each recommended commodity trading guide helps you make up your mind as to which asset you want to trade, how to trade it and how to monitor your position - once it is open.

Choose raw material with which you feel comfortable. Please read our list of commodity markets you can trade at a recommended broker. Then select a market that you understand that offers the level of risk you are comfortable with. Pick a market with good knowledge, one that offers trading opportunities that you can assess with market research and analysis before placing your first trading.

Select the type of trade that is right for you. You can opt to trade commodities with a spread bet or a CFD. Electing the right type of trade that fits your trading strategy is of vital importance.

Determine the direction with which you want to enter the market. Once having done your research and market analysis and taken market trends and current price direction into consideration, you ought to decide whether you wish to buy or sell.

Place your commodity trading business. Once you have selected the asset, trading type and direction, you must monitor your trading business. Now is the time to protect against market volatility by using smart risk management tools such as stop losses or limit orders. Our recommended brokers also offer you free guaranteed stops on select numbers of the most popular markets, including crude oil and gold. This helps you to resolve your risk issues.

Choose a trade size that is realistic and does not overspend your account. It would be best if you always had sufficient margin in your account to cover your position.

Watch and close your trading business. Depending on your trading strategy's time frame, you must always stay up to date with global financial news, especially regarding the asset you are trading with. This would help you to respond to market-moving events that may affect your position.

It would help if you did good research on the raw material you want to trade with. If you have background knowledge about the market or read a lot of news, analysis and research about a particular asset – just as well!

How do traders trade Forex with profit?

The foreign exchange market is based solely on speculation: investors bet their money on a currency rising in price.

Trade is made on the forex in currency pairs. A common example would be the EURUSD pair, for example, trading at 1.2953. The euro is the base currency here, while the US dollar is the exchange rate currency. For all currency pairs, the base currency is worth one unit, while the price currency indicates how much of that currency a unit of the base currency can purchase. In this example, a euro can buy 1.2953 US dollars. Investors can now earn money by betting on either an increase in the price of the currency or a decrease in the price of the base currency.

Another way to look at currency trading is to look at the base currency as a short position. To buy the exchange rate currency, the base currency must be" sold". The price currency is, therefore, a long position.

In the above example, we see that a euro can buy$ 1.2953 – and vice versa. To acquire the dollars, the investor must first go short to be able to go long afterwards. To make money now, the investor must sell the dollar back as soon as the value has risen compared to the dollar. For example, if the price of the currency pair rises to 1.3953, the investor would have made a profit of€ 100 with an investment of € 100,000.

Just how much different are commodities and Forex in trading terms?

While both commodities and Forex rates may be traded as pre-defined contracts via a futures exchange , commodity contracts cannot be traded via the commodities market.

Commodities are tangible, while currency pairs are more of an abstraction.

Compared to the commodities market, the FX market is extremely volatile.

Leverage rules the roost with FX traders, while there’s not much song and dance quality to leverage in commodities trading.

Commodities are exchange based, while Forex market is an OTC(Over-the -Counter) phenomenon.

Commodities trade inside exchange limits, while no similar constraints constrict Forex trading.

Conclusion

If you are looking for a compromise between the two types of trading, perhaps you could foray into commodity-based currencies. These offer higher rollover and reflect commodity growth (especially in the case of emerging markets). These features are available with the Australian, Canadian, and New Zealand dollars.