What are Commodities

What Are Commodities?

What Are Commodities?

Metals

What Are Commodities?

Commodities are tradable raw materials and primary agricultural products; they can be categorized in several ways. For example, soft commodities are materials that are grown or bred (for example, cattle or oats), whilst hard commodities are materials requiring extraction (for example, copper or aluminium). Commodities are also typically classified in the following categories:

- Energy: Encompassing commodities such as oil, natural gas, heating oil and gasoline
- Metals: For example, aluminium, copper, gold, platinum and silver
- Agriculture: Including grown products, such as cocoa, sugar, coffee, wheat and rice
- Meat and Livestock: Including hogs, live cattle and feeder cattle


Commodities can be traded in a similar way to equities and indices – in order to make a profit, a trader can decide to ‘sell’ a commodity at a higher price than its initial ‘buy’ cost, or to ‘buy’ a commodity back at a lower price than one he/she originally ‘sold’ it for.

What Affects the Value of a Commodity?

What Affects the Value of a Commodity?

Wheat

What Affects the Value of a Commodity?

A commodity’s value can be influenced by a variety of events, including levels of supply and demand, weather patterns, government policies and war. For example, oil prices are particularly sensitive to geopolitical issues in the Middle East, especially when they endanger vital choke points in global sea channels. Choke points are narrow channels within highly travelled global sea routes, through which a high volume of oil is traded. Because the international energy market depends on reliable transport, the blockage of a chokepoint – even temporarily – can lead to significant increases in energy costs. For this reason, in March 2015, crude oil prices were seen to increase after Saudi Arabia launched airstrikes against rebels in Yemen: Yemen forms the gateway to the Red Sea and the Suez Canal, through which approximately 5% of the world’s oil is transported.


Commodity traders should also include weather risk as part of their analysis, as weather patterns and natural disasters can cause price volatility as well as regional food shortages. For example, when floods in Thailand and Vietnam hit crops, the prices of vegetables and rice commodities increased in value in order to manage with the demands from major rice importers in Malaysia and Singapore.


These cases highlight how world events can significantly affect the value of commodities. Being well-informed with regard to international news events is therefore key to making better informed trading decisions when trading commodities.

Commodities Trading with ETX Capital

Commodities Trading with ETX Capital

Commodities Trading with ETX Capital

What_is_Commodities_Trading

ETX Capital offers a wide selection of commodity trading options in both rolling daily and futures formats. Our tradable commodities include gold, silver, platinum, crude oil, sugar, oats, cocoa, rice, soybeans and wheat. You can make a start on one of our platforms today or register for a free demo platform to start building your commodity trading skills.

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