How to Trade Commodities


When trading on CFD commodities, traders do not own the commodities they have taken positions on – rather, they are trading on the market movements of their chosen commodities.


Commodities are traded in a similar way to most securities: Traders will buy or sell a commodity, aiming to turn a profit by selling the commodity at a higher value than it was originally purchased. Alternatively, a trader may buy a commodity back for a lower sum than he/she initially sold it for in order to try and profit.

Rolling Daily Vs Futures

Rolling Daily Vs Futures

Rolling_Daily

Rolling Daily Vs Futures

There are two particular formats which are generally used to trade commodities; these are known as ‘rolling daily’ contracts and ‘futures’ contracts. A ‘rolling daily’ contract’s movement is dependent on the present-time fluctuations of the commodity in question, whereas futures are positions taken based on a commodity’s estimated value at a future date.

Rolling daily contracts generally have tighter spreads than futures, and are typically used by short-term traders who hold positions from less than one day up to a couple of months. These contracts ‘roll over’ from one day to the next until a trader closes his/her position.

When traders invest in futures, they speculate on whether a commodity’s value will rise or fall within a specified time frame. A commodity futures contract is an agreement to trade a commodity at a pre-agreed price and expiry date. At the time of a trade’s expiry, if a trader has not yet closed his trade, it will close automatically. The trader’s subsequent profit or loss depends on the price of the commodity in relation to its price at the start of the trade when the trade was initiated.

Commodity Trading: a Case Study

Commodity Trading: a Case Study

Commodity_Trade

Commodity Trading: a Case Study

A trader’s first move would be to select which commodity to trade on. The selection of commodities to trade on can differ depending on the brokerage in question. ETX Capital offers a large selection of assets to choose from, including metals, energy, and agricultural commodities. Once traders have selected the commodity which they believe is best suited for their strategy, they can choose the format in which they would like to trade on.

For example, a trader decides to trade on silver, in a rolling daily format. If the current price of silver is 1279.6/1280, its ‘sell’ price is 12.79, whereas its ‘buy’ price is 1280. The trader speculates that the price of silver will increase in value, and decides to ‘buy’ silver, choosing to place £2 per point of its movement. After two days, the trader sees the asset trading at a level of 1282.6/1283 and decides to close his position.

Profit gained = (sell price - buy price) x £s placed per point of movement

As the sell price has become 1282.6, a shift of 2.6 points in the trader’s favour means that he gains a profit of £5.20 (1282.6 - 12.80 = 2.60; 2.60 x £2 = £5.20).

However, if instead the trader decided to sell at £2 per point at the start of the trade, if he chose to close the trade after these two days, he would be making a loss of £6.80 (1279.6 – 1283 = -3.4; -3.4 x £2 = -£6.80).

Apply for our

Apply for our