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BEST BROKERS FOR COMMODITIES

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Forex BrokerMax LeverageMin. DepositSpreadFull ReviewsTrade Now
400:1$0From 0.0 PipsRead the full review
400:1$100From 0.8 PipsRead the full review
500:1$200From 0.0 PipsRead the full review
500:1$200From 0.0 PipsRead the full review
500:1$200From 0.0 PipsRead the full review
200:1$0From 0.1 pipsRead the full review
400:1$100From 1.8 PipsRead the full review

What is Commodities trading?



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.

What are the benefits of trading commodities with contracts for difference?


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.

How can I trade commodities?


Each raw material has its own individual pricing factors. On the commodity markets, large price swings occur when a commodity becomes scarce or abundant. As in all economic sectors, the formation of commodity prices depends on the relationship between supply and demand. The supply of raw material also depends on many factors such as government influence, weather and climate as well as political influences or even wars.

However, if you're not a full-time trader with a professional team of analysts, it could be difficult to stay informed about weather conditions and government actions all the time. Many traders, therefore, use technical analysis to make educated trading decisions. You can look for patterns and indicators on the price chart, which could give hints on the future development of a price of raw materials. One popular instrument among traders is the moving average, which can help to determine a market trend.

A user-defined number of the last closing price is calculated to determine the "average" market price. This line is then drawn on the chart so that the trader can see the historical average price trend.

One way to trade commodities are so-called commodity futures. Commodity futures allow the trader to participate in the price swings on the commodity markets without physically receiving the product. This involves trading contracts for the future delivery of a commodity. The trader pays for the contract when he buys it. If the prices rise between the purchase date and the expiration date, the trader makes a profit. If prices fall, the trader makes a loss.

However, this type of commodity trading can quickly become very complicated. The different futures markets have unequal delivery times, and the buy sizes also differ. This is why many traders turn to commodity trading via CFDs.

Oil and gas are the world’s two most popular commodities. They are traded in high volumes around the clock and around the globe, offering multiple opportunities to online traders. Whether it is US Crude Oil (WTI), Brent Oil (Brent) or Natural Gas (NATGAS), all energy commodities are all quoted in USD.

This means, that when trading energy CFDs the exchange rate of the US Dollar is a key factor to keep an eye on. Commodity CFDs are commonly offered with a "BUY" price and a "SELL" price. The difference between those two prices in trading is known as the "spread".

After carefully selecting a Forex broker that offers commodity CFD trading and opening a Forex trading account, traders can start trading commodities from within any trading platform that is offered by the broker (sometimes on demo accounts to test their platforms). As is the case with any other complex instrument in financial markets, investors can enter long or short positions.

Who are the best brokers that allow trading the commodity markets on their trading platforms?


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.

Find The Best Commodities CFD Trading Forex Brokers for your needs


To help you find the Forex broker that is best suited to your needs, take a look at our comparison table and ranking of best commodities CFD trading Forex brokers above. If you require more in-depth information or are looking for more brokers to choose from, check out our detailed individual broker reviews and additional comparison tables.