With financial instability being the marker of 2022 and inflation rates rising to record highs across the world, the climate for trading and investing is uncertain to say the least. Staying abreast of geopolitical changes could impact business, stock prices, and currencies. In times like these, many savvy investors have started to move towards trading commodities rather than currencies, options, or stocks.
Why Trade Commodities in 2023?
In times of economic growth, commodities are often the ugly stepsisters of the trading world because they often retain a basically steady price that offers slow gains with a lower risk of losses. Compared to certain stocks, bonds, or Forex options, which can experience dramatic gains during financial boom years, commodities can seem like an overly cautious choice that are perfect for risk-averse, long-term investors.
However, when the financial market is uncertain, this lower risk level is very attractive. Furthermore, when inflation hits, necessary commodities like oil can make it above inflation, or ‘real’, gains. This is why FX companies offering different commodity assets may see client base growth in 2023 as the world deals with the aftermath of recent financial upheaval and inflation booms.
How to Trade Commodities
Because commodities are standardized for quality, their pricing is the same regardless of who produced them. This also makes commodity trading good for beginners.
For example, while the value of whisky may change depending on age, distillery, and its single or blended malt, the cost of the base commodities used to make whisky are standardized. This means you don’t need to be a whisky expert to invest in grain-based commodities, or a jewelry aficionado to successfully invest in diamonds.
All you need is a brokerage account that supports commodity-based trades, an understanding of how to make trades, and knowledge of the commodities themselves. Reputable brokers that support commodity trading include, but are not limited to:
- City Index
- FXPro
- Forex.com
- Global Prime
- Grand Capital
One of the most common ways for both businesses and individual investors to trade in commodities is via a futures contract. Futures contracts are a form of speculation based on the possibility that the base price of a commodity will rise (or fall). Usually, a futures contract has an expiry date. For example, if you were to buy $1,500 worth of gold on March 1st and the expiry date of the contract is the 1st of June, your profit or loss will be determined by the per ounce cost of gold on that date.
Another option is to undertake leveraged or margin trading, whereby you put up only a percentage of the value of the contract. This presents the possibility of huge profit, but also the chance of huge losses. Leveraged commodity trading is not recommended for those who are new to this form of investment.
Finally, with certain commodities you can buy and physically hold the asset. This is most common with metals and gems, as it is impractical for any perishable commodity. If you are going to do this, ensure that you keep your assets in a secure place and insure them.
