Traders can speculate on the future value of a commodity, buying and selling to profit from price fluctuations. Some investors also use commodities as a way to diversify their portfolios and hedge against inflation. How to Trade Commodities.
Trading commodities can be done through a range of instruments including stocks, options, ETFs and CFDs. Choosing the right instrument for you depends on your investment objectives and risk tolerance. For example, if you’re looking to open a position in oil, it might be better to choose a CFD, rather than a physical asset. This will reduce your operational risk and allow you to make smaller trade sizes.
How to Trade Commodities: Beginner’s Guide
Commodity markets tend to zig when stocks zag and can be a great addition to your portfolio, especially for passive investors. They can also provide an alternative to equities for active traders that want to expand their market coverage.
For those new to the industry, a good place to start is by learning about the different types of commodities. This will give you a greater understanding of the fundamental drivers behind price movements in this sector.
Investing in commodities can be done through the purchase of futures contracts or exchange-traded funds (ETFs). Alternatively, you can trade them through the user-friendly CFD instrument offered by many trading platforms. This enables you to speculate on the prices of oil, gold and wheat without having to own the underlying assets. CFDs are also versatile and enable you to sell short, so you can profit if the price of your chosen commodity falls.