The advantages of commodity trading with UXOOL
- Trading on market trends to increase / decrease
- Trading without actual possession of a financial instrument, which is represented by a contract
- Earnings on falling prices with the help of "short" positions
Along with global currency markets, commodity markets offer various opportunities for private traders around the world. “Soft” commodities are sugar, wheat, or corn, which have been traded for several centuries now, and they owe their popularity with investors to their quality as a tool for diversification and risk management.
Investing in products that are traded in contracts is a reliable way to reduce risk even in the face of inflation or economic uncertainty. They protect the buyer and the seller of contracts from strong price movements.
The operation of the commodity market is functionally ensured by high seasonal volatility, sharp increases in contractual volumes and unpredictable trends. This allows experienced investors to earn impressive dividends from their investments due to frequent price changes and high volatility, as well as a high level of liquidity of all contracts and goods.
What are commodity assets?
Commodity assets are divided into two categories: hard and soft. “Solid” commodity assets include gold, silver, crude oil and iron ore. Soft commodity assets range from coffee and corn to soybeans, cocoa, and wheat. Solid commodity assets owe their name to the fact that, unlike soft assets, they have a long shelf life. Commodities are an integral part of the modern economy, because they produce - or contribute to the production - of everything: from computer and tablet to food, machinery and office equipment.
How do commodity markets work?
Commodity markets vary depending on complexity, trading sessions and tools. The most famous markets include the London Metal Exchange, the New York Mercantile Exchange, and the Chicago Board of Trade. In these markets, two types of traders usually trade: speculators and hedgers. Speculators are hedge funds, asset management firms and retail investors, who place orders for assets with the purpose to capitalize on price movements. The sale of an asset makes a profit, if the price of the asset falls. On the other hand, the purchase of an asset makes a profit if the price of the asset rises. In other words, they monitor the rise or fall in the price of commodity assets, because the profit affects their trading decisions. Conversely, hedging occurs when the trader places a position in the opposite direction relative to the position, which he has already placed. For example, a hedger who has placed a long position on gold, will place a short position at the same time, in order to protect himself from losses. For example, the airlines form a fuel hedging strategy, by trading with oil and gas, in order to limit the impact on fuel price increases and changes.
What is the difference between trade in commodity assets and foreign currency?
There are several differences between commodity asset trading and foreign exchange trading. Trading time - currencies can be traded non-stop from Monday to Friday, while commodity markets typically stop working at 5:00 pm, New York time. (The start time depends on the location and product). Liquidity - currency trading is a highly liquid activity, as opposed to trading in commodity assets. The exceptions are gold and raw oil; most commodity markets lack liquidity. World events - global geopolitical events tend to affect commodity prices, while prices of currency pairs vary depending on the economy or the social status of a country or region. The only exception may be the case when the economy of the country is focused on commodities. Such countries include Saudi Arabia, Australia, Nigeria or South Africa. Forecasting: There is no 100% predictability in business and investment sphere, but it is much easier to predict the movement of currency pairs than commodity prices, which rise up and fall due to, for example, political instability in the country, adverse weather conditions, that lead to flooding or drought, or strikes of miners or agricultural workers. Leverage: In relation to foreign exchange transactions, margin requirements are lower and less strict. Real delivery: Foreign currency traders do not need to supply, which means the agreed amount, which they operate on. For example, if you buy 1 lot of EUR / USD, you will not have to transfer $ 10,000 when opening or closing a transaction. The scenario may be different when trading commodities, especially those that require physical delivery to a specific place - fuel or bags of coffee beans, for example.
Commodities are an integral part of any successful investment strategy. They help investors diversify and hedge their portfolios, giving them the opportunity to earn an acceptable income in the long run. In order to effectively trade commodity assets, prepare in advance and study various types of goods, paying particular attention to the ones you want to trade. Then try to understand how commodity markets work, how investing in the FOREX currency exchange market differs from commodity trading, and whether you are ready to operate with high-risk instruments, such as commodities.
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The activities of our company are subject to licenses: CySec, MiFID, Ernst & Young and Belize IFSC (license number 60/354 / TS / 17). The availability of these licenses is evidence and guarantee of the provision of high-quality services by UXOOL to its clients at the highest level of service, in accordance with the highest regulations and requirements. UXOOL Ltd is part of the international holding company Leverate Financial Services Ltd (Regulated by Cyprus Securities and Exchange Commission License no. 160/11) .