BEST BROKERS FOR COMMODITIES

History

Commodity trading goes back to ancient times. Already between 4500 and 4000 B.C., there was a commodity exchange in Sumer (today's Iraq). The local traders used clay brands as exchange currency to trade goats. In 17th century Japan rice traders used so-called "rice tickets" to sell their stocks to willing buyers.

However, commodity trading did not gain worldwide importance until 1848, when the Chicago Board of Trade was opened. Today, commodities are among the most popular trading instruments in the world. They are popular with commercial traders, institutions and speculators alike.

The 4 Categories on the Commodity Market
In commodity trading, four main categories define the commodity market and within which you can trade commodities:

• Agricultural commodities: sugar, cotton, coffee beans and more
• Raw materials from the energy sector: oil and gas
• Metal raw materials: precious metals such as gold, silver and platinum, but also base metals such as copper
• livestock: cattle, pigs, poultry and other meat products

In this example, you see only a small selection of the different raw materials from the four categories of the raw materials market. It is vital to understand that most traders and investors stick to the most traded commodities - or the most liquid ones on the financial markets.

There are some commodities that are traded more actively than others. The fodder market consists of the cattle farmer and the distribution company, with not much trading activity. According to the Chicago Mercantile Exchange, the total trading volume on the feed market in November 2018 was only 1,365 trades. This figure expresses how many contracts were bought and sold for the right to buy or sell feed cattle.

In the oil market, however, drilling companies from the public and private sectors, service companies such as Shell and BP, airlines and other industries that actively buy and sell oil to keep their fuel costs in check, and speculators meet. The Chicago Mercantile Exchange quotes the total trading volume for crude oil in December 2018 at 866,628, a huge difference compared to fodder cattle.

Price movements and CFD trading

Traders can profit from the price movements of various asset classes such as Foreign Exchange (Forex; currency pairs), indices, shares, cryptocurrencies and commodities, without actually having to own any of these assets. A very common and popular way to do this is through derivatives trading, also known as CFD (contract for difference) trading. This way, a trader doesn’t actually buy any physical stock, currency, digital asset or commodity but rather enters into a temporary order to buy or sell a pre-stated theoretical amount of those financial products. Profits and losses are determined by changes in the price while the contract is active. As is the case for all financial instruments, CFDs in the commodities markets have a specified contract duration.

Trading CFDs has become very popular among traders and there a couple of exclusive benefits over other investments when trading commodities as a CFD. Trading Commodity CFDs allow Forex traders to watch out for trading opportunities and trade on the price movement of the underlying physical commodity. When combined with access to leverage (attention: high level of risk!), traders aren’t required to invest the full trade amount in order to gain the maximum exposure to an investment. This means a trader's capital can be spread across different trades or asset classes. However, traders should always heed all risk warnings and keep in mind that leverage can lead to magnified losses as well as profits.

Brokers offering financial services to their clients typically allow for a variety of commodities trading. Sometimes precious metals such as trading gold or silver are included in their commodities trading offering while other times precious metals are seen as separate class of their own. Under mined commodities (hard commodities) fall oil, gas and precious metals while so called soft commodities include coffee, sugar, soy beans, corn, cocoa, wheat, etc. since they are rather grown than mined.

Many derivatives traders engage in CFD trading or spread betting on future contracts on all the above mentioned commodities.

As always, a trader should make sure that the Forex broker of choice is properly licensed and regulated. The best brokers are typically those that are registered with strong regulators and industry watchdogs such as the FCA (Financial Conduct Authority) in the United Kingdom, the ASIC (Australian Securities and Investments Commission) of Australia, or the CySEC (Cyprus Securities and Exchange Commission) of Cyprus.

One top Forex broker offering financial services we found offering Forex, indices, and commodities trading is AxiTrader. AxiTrader is an Australian Forex and CFD broker that allows for a maximum leverage of up to 400:1 (Risk Warning: high risk when using leverage in trading CFDs, spread betting, etc.) and has no minimum deposit requirement. They are licensed and regulated by ASIC (Australia) as well the FCA in the UK, allow trading on the popular MT4 trading platform, and offer low spreads and commissions. They also offer two types of retail investor account options. For example, their MetaTrader4 Pro Account shows the raw interbank spread received from liquidity providers, and a commission fee of US$7 per standard lot round turn applies when using this account option. No additional fees are charged for trading the Forex market or CFD products.