Commodity trading introduction 

Commodity trading and the quality of life enjoyed around the world, is the aspect that many people don’t fully understand the direct connection between commodity, and how prices do affect the lives of billions of people every single day.

Commodity tradingThink of what happens when the price of oil suddenly skyrockets. Since Americans are highly dependent on gasoline to fuel up their vehicles, they notice when prices at the pump rise. They just may not realize that those prices are going up as a result of changes within the commodity market.

Commodity trading characteristics

If you want to profit from trading in commodities, you first must understand the connections between current events occurring around the world and fluctuations in the market. For example, political unrest in Saudi Arabia could easily result in higher gasoline prices for Americans since the U.S. imports a lot of their oil from Saudi Arabia. A natural disaster that destroys crops in one country could easily cause dramatic price increases for that food source around the world.

Commodity trading allows you to profit from the trade of these primary resources. While the way these trades are issued and controlled is a modern invention, there is nothing new about exchanging money for basic goods. Your ancestors spent their lives trading wheat for eggs and livestock for gold. The only difference is that you’ll profit financially rather than accepting goods in exchange for goods.

Four primary commodity types

It’s impossible to list the specific products that are exchanged through the commodity market, but you can group them into four basic categories:

Metals, Energy, Livestock and Agriculture 

Regardless of which category you choose to invest in, it’s important to understand the aspect of supply and demand in commodity trading. Countries around the world are continuously growing and changing. When one country begins to place a higher demand on the market for a certain type of metal or an agricultural product, the supply available to other areas of the world tightens. This creates an increase in price until the availability of the product for the worldwide market improves.

The same thing happens when a shortage of any primary product is created in the market for any reason. When consumption of a product slows, an abundance of that item remains on the market. This creates the opposite effect with dramatic reductions in price for those still interested in purchasing that product.

Hedging with gold

If you flip through television channels late at night, you’re likely to come across at least one infomercial trying to sell you gold coins. They’re marketed with decorative imprints and are often dedicated to historical or political figures, but the argument is that you can always count on your gold investments to carry you through when paper money loses its value. This is reflective of one way that many people invest in gold and other precious metals. They hedge their bets, hoping that their gold will carry them through rough times when other investments tank.

While gold is considered one of the safest entries into commodity trading, there is always some risk involved. Yet, it is typically much safer than other commodity markets, which can become quite volatile at times.

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