Commodity Trading with Crypto — A Beginner’s Guide in 2020
Commodity trading is one of the most popular types of trading in the world, however, few really understand the influence that commodities have on the world and the financial market at large.
We are all consumers of commodities and we interact with them almost every single day of our lives, whether it’s in the form of your daily coffee, the gas in your house, the oil in your car, or the gold or silver in your jewelry. However, what you may not have known is that these products are traded in the global financial markets for a profit.
In the latest of our series of beginner guides, we will take a look at what commodity trading is and review the overall fundamentals of the commodity market in order to provide you with a solid beginner level understanding of how you can begin trading commodities using cryptocurrency on the TradeConnect network.
We will cover:
- What is a Commodity?
- What is Commodity trading?
- Advantages of Commodity trading
- The 5 major types of Commodities
- Top 10 Commodities traded in the world
- What drives Commodity prices?
- Which Commodities can you trade on TradeConnect
- Why trade Commodities with TradeConnect
- How to trade Commodities with Crypto
So let’s dive into this overview of commodity trading to find out more about one of the most popular trading markets around the world.
What is a Commodity?
A commodity is simply a basic good or raw material that can be grown, extracted, or mined and can be bought or sold.
Commodities are an example of a fungible asset, which is a word you may have heard a lot about in the crypto world, think Monero! In this sense, fungibility simply means that the commodity possesses attributes that remain the same throughout all of its life. Irrespective of whom you buy your commodity from, it will always be the very same product and thus priced the same anywhere in the world, excluding local taxes or transportation.
Examples of traditional commodities include gold, oil, wheat, sugar, grains, coffee, and even natural gas.
What is a Commodity market? A commodity market is simply a physical or virtual market for the buying, selling, and trading of raw or primary products.
What is Commodity Trading?
Commodity trading is the process of speculating on the increasing or decreasing price of commodities within a digital trading market which ultimately makes the speculator a profit or a loss.
Trading commodities can be an important way of diversifying your trading portfolio as commodities tend to move in opposition to the stock market and therefore you can hedge your risk. Other traders choose commodity trading as they like the market volatility associated with commodity trading. Whatever reason you decide to trade commodities, commodity traders must be quick to react to market-moving events.
In its most simplistic sense, the basic principles of supply and demand are what drives the commodities markets and thus the value of a commodity. If the commodity becomes scarce (or demand goes up), the value also increases. If the commodity becomes plentiful (and/or goes down), the value also decreases.
Advantages of Commodity Trading?
Commodity trading is attractive to traders for quite a few different reasons.
- A safe haven — Some assets retain better value, or even increase in value, during times of turbulence. Gold is a good example and thus can be a safe haven during market volatility.
- Liquid markets offer profitable returns — Experienced traders can take advantage of highly liquid commodity markets due to their volatile swings. Liquid markets are also easier to move in and out of when moving between different assets.
- Population growth — Global population is currently at 7.7 billion and continues to climb. More people generally mean that there is more demand for food, and infrastructure which in turn creates demand for energy and metal commodities and therefore commodities as a whole continue to rise over the long term.
- Diversification of your portfolio — many investors and traders rely heavily on property or the stock market. By adding a broad exposure to a range of commodities you are ensuring that you have a diversified strategy and a stronger safety net against risk.
What are the 5 Major Commodities you can Trade?
The 5 major commodities that you can trade include:
- Agriculture — rice, wheat, cocoa, coffee, sugar
- Livestock and Meat — feeder cattle, live cattle, pork bellies
- Energy — crude oil, coal, gasoline, natural gas
- Metals — steel, copper, iron, gold, nickel, platinum, silver, cobalt
- Other — lumber, rubber, wool
What is the difference between hard and soft commodities? You may also come across the terms hard and soft commodities when you start researching commodity trading.
Hard commodities are simply natural resources that must be mined or extracted such as gold, silver, rubber or oil reserves. Hard commodities are not perishable and therefore are easier to store than soft commodities. They are also less vulnerable to volatility in the short term, although there are anomalies to this such as the oil crisis at the beginning of the Covid pandemic. In general, the prices of hard commodities are more dependent on global macroeconomic fundamentals such as interest rates and GDP growth.
Soft commodities, in contrast, are anything of an agricultural nature or livestock. Soft commodities have a shelf life and can fluctuate quite dramatically as they are subject to additional external forces that determine and impact their overall supply and demand such as the weather.
Top 10 Most Traded Commodities in the World
Whilst the list changes over time, ten of the most traded commodities include:
1. WTI Crude oil
3. Natural Gas
5. Brent Crude Oil
What Drives Commodity Prices?
Even for the most experienced traders, commodity trading prices tend to be the most volatile and unpredictable of all other major tradable assets. This is primarily due to the fact that commodities are extremely sensitive to changes in the global macroeconomic landscape.
Every single commodity has its own unique characteristics and influences that affect its individual price.
In the short term, commodity prices are affected by weather, interest rates, and speculation. In the long term, commodity prices are affected by the underlying fundamentals such as supply and demand which is mostly impacted by income, population growth, technology and the actions of governments around the world and producer organizations, such as OPEC.
There are a number of different things that drive commodity trading prices both up and down, these include:
- Supply and demand
- Income and population growth
- Emerging markets
- Interest rates and the US Dollar
- Government policy
- Producer organizations
Which Commodities can you Trade on TradeConnect?
On the TradeConnect multi-asset trading network, you can trade the following commodities:
- Brent Crude Oil
- WTI Crude Oil
- Natural Gas
Why Start Commodity Trading on TradeConnect?
There are many reasons why you should choose TradeConnect as your platform of choice to start trading commodities. Here are just a few:
- Global trading on a single platform
- Over 60 financial assets
- Up to 500 x leverage
- Institutional grade liquidity
- Use bitcoin (BTC) or ethereum (ETH) as your margin
- Lowest transparent fees
- Secure & trusted — $100M insurance
- Keep your profits in crypto
- 24/7 multilingual customer service
- Earn daily and monthly rewards
How to Trade Commodities with Crypto on TradeConnect?
To get started with commodity trading using bitcoin (BTC) or ethereum (ETH) as your margin currency, all you need to do is:
- Download the TradeConnect app from the App Store
- Create an account — takes 30 seconds and is quick and easy
- Deposit bitcoin or ethereum to start trading
- Select the commodities that you want to trade
- Open a position to begin trading