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Commodity Markets Explained: From Basics to Advanced Strategies

From simple bartering systems in its earliest days, commodity markets have driven the flow of global trade and later were transformed into sophisticated trading platforms.

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Commodity Markets Explained: From Basics to Advanced Strategies

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  1. From simple bartering systems in its earliest days, commodity markets have driven the flow of global trade and later were transformed into sophisticated trading platforms. Today they offer a lot of possibilities for traders and investors to diversify their portfolios and hedge risks of the other portfolios. Finally in this guide we will show you how to trade in the dangerous waters of this ever changing financial landscape starting at the basics, and advancing to more advanced trading strategies. What Are Commodity Markets? Commodity market means the price at which raw materials and primary goods (gold, crude oil, agricultural produce) trade. These markets are divided into two categories: 1. Spot Markets: Where commodities are being traded for delivery soon. 2. Futures Markets: Traders buy or sell contracts for the delivery of commodities at a future date. The main attraction is commodity markets are universal, with global supply and demand spilling over yet local factors ensuring the price. What you need to know about commodity markets. Types of Commodities Commodities are generally classified into two main types: ● ● Hard Commodities: Crude oil, natural gas or metals like gold, silver, and copper. Soft Commodities: Wheat, coffee, cotton, etc… How Trading Works

  2. In most cases, the trading of which commodity is done, is more of financial instruments than the physical exchange of goods. Traders use price movements as a way to speculate and profit, or else hedge against, the risks of price movements. Why should you want to go into trading in the commodity market? ● Portfolio Diversification: Adding commodities brings the count of assets under management to six. Hedge Against Inflation: But commodity prices often go up with inflation, which means they are a form of protecting purchasing power. High Volatility: Because commodities prices change so frequently, the markets provide quick returns. ● ● Intermediate Strategies in Commodity Markets Technical Analysis Start learning to analyze price charts, volume trends & technical indicators to identify commodity price movement. Moving average, Relative Strength Index (RSI), and Fibonacci retracement are common tools. Fundamental Analysis It monitors supply and demand factors common to all commodities, such as geopolitical events, natural disasters, changes in supplies or production levels, etc, that all can have a major impact on commodity prices. Understanding Leverage One of the reasons people engage in commodity trading is leveraging, where with a small amount of capital you can control larger quantities. Yet while leveraging can compound both gains and losses, there’s no other word to describe it besides ‘risky’. Experienced Traders advanced strategies for trading Spread Trading When we spread trade we are buying and selling similar commodities at the same time. For instance, you can sell natural gas futures, and buy crude oil futures at different prices. Options Trading Even as in commodity markets trades, the trader exercises the right but not the obligation to buy or sell the commodity at a specified price, options offer that possibility. This is an excellent way to capture upside without having to put on too much risk. Algorithmic Trading

  3. Algorithmic trading systems can be used by advanced traders to execute trades based on predefined criteria. This strategy minimizes human error and takes advantage and capitalizes on market inefficiencies. Hedging with Futures Hedging means a covering of any possible loss on one of them by an opposite on another related asset. Hedging fuels costs, for example, airlines typically purchase fuel futures. Commodity Prices affected by following Key Factors 1. Supply and Demand: Inflation caused by natural disasters, political instability or contractions in production. 2. Geopolitical Events: There can be prices due to conflict as well as trade agreements. 3. Currency Fluctuations: Prices can change because most commodities are traded in USD. 4. Economic Indicators: Demand for commodities is influenced by data such as GDP growth, employment rates and industrial production. Advantages of Trading with a Trustworthy Platform In this regard, it is very important for traders who want to enter commodity markets to choose a reliable broker such as Spec Global. Real time analytics, educational resources, and seamless trading tools can provide you with a huge difference to boost your trading journey. Conclusion Commodity markets are complex but very rewarding if you could take the time to learn them and apply the effective strategies. There is a massive potential for profit from understanding basics of spot and futures markets to advanced theory such as spread trading and the use of algorithmic systems. When you’re just starting out or you have been trading for years, you are going to need the right tools and strategy if you want to succeed. Closely look at such platforms as Spectra Global, helping you to trade in commodity markets as, more or less, effectively as possible.

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