Commodity markets

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commodity markets

Commodities – oldest markets in the world

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With commodities markets of the XXI century, you can participate in the global trends of oil and gold prices from home, anytime you want. And do not worry, there is no physical delivery.

The history of commodities trading starts with the agricultural traditions of the early civilisations. Nowadays, raw or primary products such as gold, silver and oil are exchanged on the commodities markets, using highly sophisticated electronic trading systems. A significant part  of the market turnover is constituted by companies that sell or buy  goods in direct relation  to their actual economic activity, such as mines, farmers and heavy industry.

Commodities can be traded both on regulated stock exchanges, typically using futures contracts for speculative purposes, and on the OTC market, for example using Contracts for Difference on our trading platform.

Commodity markets – why they are popular?

  • Markets such as oil and gold draw the attention of the global media, especially during periods of turmoil on other financial markets.
  • Prices of commodities like oil and agricultural products heavily influence inflation, playing a vital role in the international economical system.
  • Commodity markets create a unique mixture of fundamentally-driven interaction between demand and supply, as well as global speculative trading on its derivative instruments.
  • Different commodities groups offer many interesting opportunities for diversification of the whole trading portfolio.

What moves the commodities prices?

Commodities prices are related  to important economic factors on  an international scale, such as inflation and economic conditions. The more dynamic the global economical development is, the higher the demand is for  energy, represented by the markets such as oil and gas, agricultural products, luxurious or high-end technological products made of gold and silver and other commodities.

On the other hand, rising prices of commodities result in inflation, as the purchasing power of money in real terms is reduced. On the supply side, what matters are the factors that influence the conditions of the production of  raw materials, such as weather and other climatic conditions, strikes among factory or mines workers and other events of a similar nature. Global political or economical unrest may also cause  higher interest in commodities treated as so-called „safe-heaven”, such as gold and silver.

If you want to learn more about the analysis of the fundamental condition of commodities markets, please refer to our Fundamental analysis of commodities markets section.

If you would like to learn how  graphical charts can be analysed, in order to prepare the actual trading decision, you can refer to ourTechnical analysis section.

Most interesting facts

  • The main groups of commodities include metals, energy and agricultural products, with the most popular instruments being  gold, silver, oil and wheat.
  • The first stock exchange tradingcommodities  were created as early as  the XII century.
  • Tulip mania was most probably the first speculative bubble „invented” by the financial markets pioneers of the XVII century.
  • Commodities markets have experienced adynamic growth of  turnover during the first decade of the XXI century, as OTC derivatives.
  • The world’s biggest physical commodities stock exchange is New York . Actually, it is also one of the few exchanges where the so called „open outcry” system of trading is maintained.
  • The open outcry system is the traditional stock exchange trading system, just as it is shown in TV  reports  – traders use voice and gestures

Gold Trading Example

Buying XAU/USD

Leverage 1:100

Opening the Position

Opening price of the GOLD against the US Dollar (XAU/USD) is 1250.00

You decide to buy 1 standard lot (the equivalent of 100 ounces) at 1250.00.

Margin required to open the position is 1*100*1250.00*1/100=USD $1250

Closing the Position

Closing Price of the GOLD against the US Dollar (XAU/USD) is 1274.50

One week later the Gold has risen against the USD to 1274.50, you decide to take your profit by closing your buying position

Market movement= 1274.50 – 1250.00 = 2450 ticks

Gross profit on Trade = USD $ 1*2450 = USD$ 2450