How To Trade Commodities & Best Commodity Brokers 2019

How To Trade Commodities & Best Commodity Brokers 2019
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Commodities trading dates back to the early civilizations in Egypt and the Middle East, long before the establishment of stock and bond markets. It has since undergone numerous stages of modernization with the most recent being the adoption of online futures contracts, also known as Contracts For Difference (CFDs) as one of their primary trading instrument. But one thing remains steadfast though, the commodities basket hasn’t changed, and has only served to expand and feature more commodities.

The commodities market is quite expansive and caters for virtually every tradeable physical good. From agricultural produces, to precious metals, and natural oils and gases. Some of the most popular commodities in either of these industries include Gold, Silver, Platinum, coffee, Wheat, Sorghum, Soybeans, Corn, Crude oil, and natural gas.

 

Online commodity trading differs from conventional commodity exchange in the sense that here, you are only engaged in CFDs trading, implying that you don’t own the underlying physical commodity but rather trade its price movements.
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eToro is a multi-asset platform that offers CFD and non-CFD products. 76% of retail investor accounts lose money when trading CFDs with this provider. Your investment is at risk and you could lose your money investment.

Why trade commodities?

  • CFDs can act as hedge against price of actual commodities: The fact that you can long or short with commodities makes it possible to use the futures to offset any unprecedented losses with your physical products. For instance, if you expect the price of gold or crude oil to fall, you can short its value in the CFDs thus eliminating the incidence or reducing the impact of loss.
  • Less volatile compared to stocks: Futures markets are not as susceptible to volatile markets conditions as the stock and equities thereby minimizing the incidences of huge drawdowns.
  • More profitable compared to stocks and equities: CFDs markets allow for the use of leverage in trading implying that you only need to fill up a margin to buy trade large volumes of commodities making it possible to reap maximally from small investments. The same cannot be said of stocks or physical commodity markets.
  • Prices can never go below zero: The price of online futures contracts is always hedged against the price of the physical commodity. And while the actual value of the physical commodity may fall, it can never go near or below zero. The same cannot be said of stocks or currencies.
  • Fewer markets to focus on: While there exist close to thousands of stocks and an equally countless number of currency pairs to choose from, there are only about 50 major commodities. The limited choice gives traders a chance to gain near-complete mastery of their preferred commodity.

Pros and cons of commodity trading

Pros

  • Requires minimal investments and has low overheads – mostly internet charges
  • Guarantee independence as markets remain open 24/5
  • Commodity trades are not affected by such economic factors as inflation
  • Long and short order calls make it possible to profit from both up-trending and down-trending markets
  • CFDs are more liquid than the physical commodities and equities

Cons

  • Subject to margin calls should markets move against your direction
  • Uncontrolled use of leverage exposes you to excessive risks
  • You risk losing more than your invested amounts when dealing with a broker who implements ineffective risk management tools

Which Commodities can I Trade?

Gold (XAU) and Crude oil are to the commodities markets what the EURUSD pair is to Forex trading. They are by far the most traded commodities. You, however, have unlimited options on the types of commodities to engage in, drawn from the different industries. It is important to note early on that the price of online commodities has a direct relation to the price and availability of physical commodities.

When choosing the right commodity to trade therefore, you are better off starting with one from your field of expertise. For instance, if you specialize in the energy industry and have first-hand access to information on the industry operations, consider trading the energy-related commodities like crude oil.

Popular commodities to trade

Copper (HG)Gold (XAU) Crude oil (CL)Natural gas (NG)Corn (ZC)Soybeans (ZS)Coffee KC)

Copper is one of the most traded industrial metals used in the production of electrical and thermal conducting elements. The price of copper in the commodities market is influenced by its industrial demand and the level of urban development. Each copper lot carries 25 tons and is expressed in USD.

Gold falls under the precious metal commodities category and is considered a fiat commodity given that it isn’t produced for industrial production but is considered an asset in its own right. Its value in the commodities markets is therefore largely dependent on the value of the paper currencies issued by the central banks. There is a lot to know about trading gold. For more information, check out our gold trading guide.

Crude oil remains one of the most popular and attractive commodities to trade given its unending demand and high market liquidity. It also has the most impact in the market as its demand and supply also affects different stocks, bonds and even some commodities. Its price is largely dependent on the forces of demand and supply in the international markets.

Natural gas ranks highly among the heavily traded commodities given the undying global demand for the commodity. It is expressed in U.S dollars against 1000 cubic meters of the gas or 1 million British thermal units (mmBtu). Its price is largely influenced both by the forces of demand and supply at the international markets as well as the price of oil.

Corn remains one of the most traded agricultural industry sector commodities with a standardized global price. It is expressed in U.S dollars against corn bushels. The price of corn is largely determined by such conditions as global demand and supply as well as changes in climatic conditions.

Soybenas is by far the most traded and most attractive agricultural commodity classified as a legume. It is expressed in U.S Dollar cents per bushel and is often traded using the crush spread strategy. This involves buying one soybean contract and selling one for soybean oil and soybean meal.

Coffee is considered the world’s second most commonly traded commodity by monetary volume and one of the greatest income earners for the developing countries. It is expressed in U.S dollars per pound in the commodity markets. Its price is to a large extent influenced by the global forces of demand and supply at the different action centers.

Best Commodity Brokers for 2019

There are a few factors that you have to put into consideration when choosing an online commodities broker, starting with the complexity of opening a commodity trading account with them. In most cases, opening a commodity trading account is quite effortless, some brokers, however, will demand such information as your net worth and creditworthiness in consideration of the high leveraged nature and equally high risks involved.

Other key factors to consider when choosing an online broker include the number of commodities offered for trade on their platform. The different analytics tools included and the level of emphasis given to research about the market and news. More importantly, the broker should provide a training ground, a demo trading environment, on which you can simulate and perfect the effectiveness of the different trading strategies and even gain more knowledge about the different commodities being traded.

Our top picks for the online commodities brokers for the year are eToro, popular for its social trading platform, and AvaTrade, best known for its versatility and provision of numerous commodity CFDs.

1. How to trade commodities on eToro

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eToro comes off as our most preferred online commodity trading broker because it stocks virtually all the popular commodities and also due to the fact that their social trading platform that allows for copy trading makes it possible for beginners to trade profitably. Some of the commodities featured here include crude oil, Gold, Copper, silver, and natural gas. We also like the fact that they have one of the most user-friendly interfaces that makes trading as seamless as possible.

Commodity trading here starts with registering an account and taking it live with a $200 minimum initial deposit. Like with any other online broker, commodities are priced against such popular currencies as USD, GBP, and EUR. Buying and selling on with eToro is also quite straightforward as you only need to login, click on the trade markets icon, and then decide on the commodity you want to trade with. The minimum order size for commodities at eToro is however set at $100 per trade with flexible leverage starting from 1:1 to 1:20.

Copy trading

eToro further ensures that you don’t have to wait until you perfect your trading strategy or master the markets to start profiting from your investments. The broker’s copy trading platform makes it possible for novice traders to copy the trades of the more experienced traders on the platform who have consistently posted positive returns on investments at a small fee. You can, therefore, start trading immediately using copied trades while learning about the commodities and the market using their demo trading account.

Pros and cons

Pros

  • FCA, ESMA, and CySEC regulated broker
  • Near instant order execution speeds
  • Experienced traders stand to gain twice: from returns on personal trades and commission from copied trades
  • Gives novice traders the opportunity to make decent returns while still learning about commodity trading

Cons

  • Limited integration of analytical tools on eToro’s MT4 trading platform

2. How to trade commodities on AvaTrade

AvaTrade has one of the widest collections of tradeable commodities. Most of these are drawn from energy, metals, and agricultural industries and include such popular commodities as Gold, oil, and corn. But this isn’t the only reason we consider AvaTrade one of the best online commodity brokers. Other factors include the level of transparency adopted by the broker in pricing this product as well as the low spreads and high leverages for all the commodities. The broker has also capitalized on the adoption of technology and recently integrated the copy trading feature on to their system.

Trading commodities on AvaTrade start with opening a free account with the Australian broker and taking it live with a minimum initial deposit of $250 if you fund it using a credit card, and $500 when using bank wire transfer. Trading can then be executed on the broker’s web trader platform, their AvaTradeGo mobile app or through their advanced MT4 trading platform. These platforms are quite user-friendly making order execution quite effortless.

Spreads and leverage

You will also need at least $100 to enter into a trader for any commodity here. The broker is, however, ready to advance you some of the highest commodity leverage that ranges between  1:100 and 1:200 for such popular commodities as Gold, crude oil, and Brent oil. Leverage for all other metals and energy commodities at AvaTrade stands at 1:50 while agricultural products start from 1:33. You will also be benefitting from the most competitive spreads that start from $0.03, $0.25 and $0.4 over the market rates for Crude oil, Corn and Gold respectively.

Social Trading

The social trading craze has finally caught up with AvaTrade and you, therefore, don’t have to worry about having to worry about your commodity trading skill level inhibiting your earning potential. The broker has integrated such social trading platforms as ZuluTrade and DupliTrade that allow for copy trading.

This Implies that, even with limited knowledge about commodity trading, you still stand a chance to earn decent returns on your investment by copying successful trader moves for as little as 2% of the profits earned. The two social trading features come in handy for novice traders who want to make profits while undergoing training on commodity trading and developing own strategies on the demo account environment.

Pros and cons

Pros:

  • FSA, FCA, and ASIC regulated broker
  • Highly versatile and accessible through multiple platforms like MT4, web and mobile trader
  • Competitive spreads and high leverage for all commodities, up to 1:200
  • Dedicated and multilingual customer support services availed in over 14 international languages
  • Highly customizable charting options integrated with premium analytical tools that also allows for auto alerts
  • Proper risk management practices and support for expert advisors

Cons

  • High incidence of slippage and requotes that increase overall trading costs
  • Risk management doesn’t include negative balance protection for traders outside the European Union
  • Beginner traders may consider the $250 and $500 initial deposit amounts prohibitive

How to trade different commodities

As mentioned earlier, trading commodities CFDs involves buying and selling contracts for the future price of these commodities. You enter into a contract with your online commodity broker and agree to settle the differences in the price of the contract at the end of a given period of time. If the markets perform as you expect, the broker fills your account with the excess funds by the time of closing the trade and vice versa.

The key to successful commodities CFDs trading, therefore, lays in the mastery of the price movements. And learning how to use different tools to interpret current conditions and forecast possible price directions. The two most popular types of price movements are: the trending prices,  where the price is following a specific upward or downward trend and the ranging price that involves the price bouncing up and down around a specific price point.

Trading a commodity on a trending market

A trending market refers to a situation where the price of a given commodity, gold or corn, assumes an upward (with rising prices) or a downward rally (with falling prices). It is, however, important to note that the price of commodities never follows a straight line but is characterized by uneven periods of bullish and bearish price trends.

While the monthly or quarterly charts may be indicative of a rising trend, it makes it practically impossible for a trader to determine the next course of market action. Several technical analytic tools have nonetheless been designed to help you decipher a particular commodity’s price action movement and include Moving Averages and Fibonacci tools.

Using the moving averages

When examining the price action using the Moving Averages analyses tool, you will be looking out for the point at which the price of a commodity bounces off the moving average line. In most cases, this occurs when a shorter-term moving average line (50-day MA) crosses over the longer term moving averages trend line (100-day MA). If the line crosses above, that is an indication of a buy signal while crossing below indicates a sell signal.

Using the Fibonacci retracement tool

You can also use the Fibonacci retracement tool to determine the best buying and selling points in a trending market. You then are supposed to buy the commodity when the tool points to a possible price dip in an upward trending market and sell if it indicates a price rally in a downward trending market.

How to trade commodities in stagnant market using Oscillator tool

The price of commodities won’t always assume an upward or downward trend, it will at times stagnate around a given price position. It will be characterized by numerous short price bursts and recessions, often referred to as ranges, which dance around a particular price point.

You can use oscillators to determine the best entry and exit points here. In such a case, the tool will help you identify the price dips when a commodity is oversold- the best buying point- and highest points where the commodity is overbought –representing the best selling point.

Should you use fundamental and technical analysis tools?

The decision on whether to use the fundamental or technical analysis tools to a large extent depends on your preferred trading style. If you hope to scalp such popular and high-liquidity commodity markets as gold or oil, you are better off employing technical analysis tools. If you intend to hold onto a commodity for a longer period of time by swing or position trading, you are better off considering the fundamental analysis techniques. The fundamental analysis here involves vetting the causes of long term price movements and reacting accordingly.

Sources of information for different commodities

The nature of most commodities makes them impossible or unprofitable to scalp and day trade. Most commodities investors are fundamentalists and this, therefore, demands a different approach to price analysis. Importantly, the fact that the price action of the online traded commodities CFDs has a direct relation with the price of the actual commodity brings the need to understand the underlying industry and how different changes and operations impact on the price of the commodity,

American Petroleum Institute and Energy Information Administration maintain some of the most comprehensive databases for the different markets and industries. The U.S Department of Agriculture also issues weekly and monthly reports on the state of the industry. Similarly, the precious metal and energy sectors are also releasing regular reports that have a direct impact on not just the price of the physical commodities but that of their CFDs counterparts as well. You can as well access the commodities calendar to review upcoming events that may impact your trading.

Bottom line

Trading commodities is no longer a preserve of mercantile exchanges and deep-pocketed investors. It has since moved online in the form of contracts for differences provided by such online commodity brokers as eToro where margin and leveraged trades make it possible for virtually every enthusiast to trade commodities.

In a bid to make commodity trading accessible to as many traders as possible, these brokers have also come up with expansive training courses that teach everything there is to know about commodity trading. The top brokers have also embraced the social trading platforms and copy trading features that give novice traders a chance to make profits by duplicating the trade settings of the more experienced traders. You will, however, need to master the different analytic tools and how to interpret them if you too hope to reach the pro trader status.

FAQs

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What are commodities?

These are defined as the basic goods or raw materials traded by individuals or institutions and often used in the production of more complex goods. These include such precious metals as Gold and silver, agricultural produce like corn and soybeans, and energy sector commodities like oils and natural gas.

How else can I trade commodities?

Popular ways of buying different commodities safe for the CFDs offered by the online commodity brokers include futures contracts that can be traded on Chicago (CMEX) and New York (NYMX) Mercantile Exchanges, Commodity-based ETFs that can be exchanged in the stock market, or buying and selling the physical commodity.

Do these CFDs contracts have an expiry date?

No commodity CFDs don’t have an expiry trade and function like any other financial instruments. The trades will, therefore, remain open until a time when the account holder decides to close them.

Can you trade commodity CFDs in the United States?

No. CFD trading is prohibited in the United States for both the country’s citizens and residents. Online traders here seeking to diversify their portfolios through commodities trading may consider such viable options as Futures contracts or the exchange-traded funds (ETFs).

Do online commodity brokers support automated trading?

Online commodity brokers have the right to exercise their discretion in deciding whether to allow the integration of automated trading algorithms into their MT4 platforms or not. Nevertheless, most brokers, support the use of expert advisors implying that you can trade your favorite commodity automatically, especially when using the scalping strategy.

How much do I need to start trading commodities?

Most online commodity brokers, including eToro and AvaTrade, have the minimum trade entry price for all their commodities set at $100.

Can I use stop loss and take profit orders when commodity trading?

Yes. Most online commodity brokers have committed to helping you safeguard your initial investments by way of introducing several risk management tools such as the stop loss and guaranteed stop loss features.

What is the most traded commodity in the world?

Crude oil, Coffee, Natural gas, gold, and Brent oil make up the five most traded commodities in the world, with the USD coming off as the most preferred pairing option for all these commodities.

Must I use a broker when trading commodities?

To a large extent, yes. Whether you need to buy CFDs that are exclusive to online commodity brokers or the Exchange traded ETFs, you will need a broker. The only part of commodity trading that doesn’t necessarily need a brokerage house is when buying the physical commodity.

Am I missing anything?

22 thoughts on “How To Trade Commodities & Best Commodity Brokers 2019

  1. Just heard of something called swing trading. What’s that?? And what does it have to do with commodities trading?

    1. Hello Justin7. Thank you for your question. More and more investors have been starting to turn to swing trading to try and maximise profits. Swing trading basically refers to the technique of buying and selling stocks, commodities or currencies, holding your trading position for days or even weeks, until you get rid of them to make profits. An advice we-d like to give if you want to swing trading is, never get attached to an asset, no asset will be your lucky charm, just trade with the most profitable assets based on your research. I hope that answers your question.

    1. Hello lui64. Thank you for your question. Trading commodities will allow you complete independence because markets are open 5 days a week. CFDs are also more liquid than physical commodities and you can make profits for both falls and increases in the prices of commodities. Another great advantage of commodity trading is that commodities are not affected by economic factors such as inflation. As for its downsides, make sure you do not use excessive leverage or it may turn against you. You also risk losing more than what you invest do to brokerage fees and commodities are subjected to margin calls in case the markets were moving in the opposite direction to your trades. So overall we certainly do recommend trading commodities even though there are some negative aspects of it that we suggest keeping in mind.

    1. Hello hax66. Thank you for getting in touch with us. The answer to your question is that commodities are not as volatile as stocks and cryptocurrencies, meaning that they are more stable and the direction of their value is often easier to predict. But that is not the only advantage they have. They are also more profitable than stocks because CFD markets allow you to use leverage whilst trading, which means that you only need minimum amounts to place trades and maximise your profits assuming the trade is profitable. Another point in favour of commodities is that their price can never go below zero, which is not the case for stocks and currencies. Finally, because there are just around 50 major commodities, it is much easier for a trader to choose their preferred asset in this case than it is for other types of assets, which have hundreds of options available. I hope that answers your question.

  2. hello. how much do I need to sign up on etoro and avatrade?? i’m a bit worried about this cuz my budget is pretty low. I kinda wanted to get started with minimum amounts of money and then see if I made profits to keep on trading commodities…

    1. Hello wes83. Thank you for your question. We completely understand your concern. The minimum deposit required by eToro to allow you to start trading is $250 whilst AvaTrade requires at least $100. These are standards amounts and even though you might be able to find something cheaper, you should be aware of the fact that there are exchange platforms that offer lower deposits simply to attract new users but they charge very high fees to make up for it. That means that in the long-term, you are much more likely to save up money with a platform like eToro that has very limited fees compared to any other platform requiring a low initial deposit but charging high fees.

    1. Hello riga20. Thank you for getting in touch with us. The majority of online commodity brokers, such as eToro and AvaTrade, have a minimum trade entry price for commodities at $100. Other than that you should take into consideration the initial deposits required by brokers, some of them are low, but others require up to $500 or even more to allow you to access the trading space. So yeah, keep that into account as well. eToro fore example, requires a minimum deposit of $250, which is a standard amount.

  3. I know that there are some brokers that trade automatically, are there any platforms that do the same for commodities??

    1. Hello pron747. Thank you for your question. It is not brokers that trade automatically but auto trading robots. The difference is that auto trading robots are software that connect to online brokers and use them as platforms to place trades for you. Some online commodity brokers do connect with auto trading robots and some do not. The best thing to do if that is what you are looking for is to start from an auto trading platform, which will then connect you to the broker you are looking for. Doing it the other way around can be much more challenging. I hope that helps.

  4. Hello, I’ve been thinking about investing in gold but I don’t know the first thing about online trading. Are there any commodities in particular that I should invest on?

    1. Hello Klaudia. Thank you for your question. It is hard to say which one is the best asset to invest your money on. The stock market is known to be volatile and predicting whether the prices will rise or fall is always the hardest part of it. The best suggestion we can give you is to never invest in one asset only. Diversifying is the key to limiting your losses to the minimum because if one investment does not go as planned, you’ll have the others to help you break even at least. I hope that helps. Best of luck.

  5. Hello there. I am new to the world of online trading and I’ve been thinking about signing up on eToro and trading commodities but I am scared of hacking attacks. What would happen if my account were to be hacked? Would I lose all my funds? I’m quite worried about that.

    1. Hello Anne. Thanks for getting in touch with us. Your concern is definitely legitimate, but let us first reassure you that eToro has never been involved in hacking attacks so far. Of course it is also true that hackers often target trading platforms like this one. However, we’ve found that eToro has put in place quite a few safety measures to prevent that from happening, such as the introduction of PayPal as a payment method. The answer is yes, if your account were to be hacked, you’d probably lose all of your funds. What you can do before you sign up on eToro is to have a look on their website and find their legal section or their terms and conditions and search for their refund policy. If they have one in case of hacking attacks, it probably means you would get your money back. Alternatively, you can contact customer support and ask them if they have a refund policy, that might be easier.

  6. What would you say is the difference between eToro and AvaTrade when it comed to trading commodities?

    1. Hello Ronald. Thank you for the question. I would say that both eToro and AvaTrade are excellent brokers when it comes to commodities trading. They are quite similar in that they both offer the copy trading option and they are both regulated and user-friendly brokers. The main differences are probably that AvaTrade requires higher initial deposits than eToro does and that may constitute an issue, especially for beginners, who do not have profits to re-invest. As well as this, AvaTrade offers a high leverage on commodities, going up to 1:200. While that may be an advantage for experienced traders, it exposes inexperienced users to unnecessary risks that can result in significant fund loss. I hope that helps.

  7. Hello. I am looking for a broker that will allow me to trade commodities. What would you say is the best one at the moment?

    1. Hello Christian. Thank you for your question. We recommend eToro. You can check our eToro review if you want to check it out into more detail. In general, what we can tell you briefly about this broker is that it is regulated and well-reputed. It has a user-friendly interface and offers great customer support as well as reduced fees and a great asset variety. One of its main features is the copy trading option, which allows users to copy the trades placed by professional users. It is definitely a useful feature for beginners. On top of this, eToro is a very safe platform that has never been involved in hacking attacks so far.

    1. Hello Justyna. Thank you for question. When we talk about commodities, we mean precious materials like gold and silver but also products such as corn as well as energy resources like oil and gas. Unfortunately, we cannot predict whether it will be profitable or not to trade commodities. However, we definitely do recommend trading them if it is part of a diversified type of trading. It is always advisable to place trades on as many assets as possible as that will limit the losses you will face with the wrong investments. Investing in commodities will help you achieve that. I hope that answers your question.

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