The commodity market is one of the oldest markets to date with some of the earliest records of commodity transactions dating back to Ancient Egypt's Predynastic Period and Japan's Dojima Rice Exchange. Still, despite its ancient history and today’s modernization, this market is one of the most traded markets in the world and it includes within it some of the most vital commodities to our day-to-day life. Accordingly, it might not come as a surprise that some traders and investors alike may naturally want to access this vital market and one way to do so is through Plus500’s commodity CFDs. Here’s what you need to know about the commodity market, a few examples of commodities, and how to trade them with Plus500’s trading platform.
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Commodity Trading: What Is a Commodity?
Commodities can be defined as basic goods or raw materials that are usually used to create a certain end product. Additionally, commodities can also be commercially exchanged for other goods of the same type and are often used in the creation of other products. To learn more, check out our article on what commodities are.
Types of Commodities
Essentially, commodities can be segmented into two categories; hard commodities and soft commodities.
The term hard commodities refers to natural resources that are mined or extracted from the earth, such as metals and energy products like gold (XAU), oil (CL), and natural gas (NG).
It is important to note that hard commodity prices are sensitive to geopolitical events and supply and demand changes, and as such, they are likely to fluctuate. A tangible example of this is the war between Russia and Ukraine which broke off in February 2022. This war caused extreme volatility in energy commodity prices due to the fact that Western countries imposed sanctions on Russian energy sources. This, in turn, created market jitters and supply and demand issues that affected energy prices greatly. Similarly, the coronavirus pandemic also had an effect on energy prices.
Soft commodities include a variety of products that can be grown or raised. Moreover, these types of commodities can be directly affected by weather conditions and politics. Examples of soft commodities include coffee (KC), live cattle (LE), wheat (ZW), sugar (SB), and cotton (CT) . For example, in 2021, coffee saw a tremendous increase due to bad weather conditions. In one of the world’s biggest coffee producers, Brazil, a severe frost caused coffee prices to soar to all-time highs on July 2021. Similarly, during the same period, harsh drought in Canada and the US led to a disruption in wheat production. This, in turn, spiked wheat prices tremendously.
What Is Commodity CFD Trading?
Traditionally, trading commodities used to be conducted through Futures exchanges. However, for traders seeking access to the commodity market without having actual ownership of the commodity, CFD trading with Plus500 may be the answer. CFDs or Contracts for Difference are derivative contracts that allow traders to trade on rising or falling commodity prices. Through CFDs, traders may potentially benefit from commodity price swings without having ownership of them. In addition, commodity CFDs are leveraged which means that traders may be able to potentially magnify their gains if the prices go well with their position. On the flip side, this also means that they can incur more losses.
How to Trade Commodities with Plus500
For traders who want to know how to buy or sell commodities through CFDs, Plus500’s global fintech group may be the answer. To trade Commodity CFDs with Plus500, you need to open a trading account. Afterward, you may go to your Plus500 account and click on the “All Commodities” option on the left sidebar. Alternatively, you may type the name of your preferred commodity into the search bar. After selecting a commodity, you can choose whether you want to open a buy or a sell position depending on your trading strategy and goals. Furthermore, another way to access the commodity market is through Plus500’s commodity Options CFDs.
You may also try commodity CFD trading without committing your real money with Plus500’s free and unlimited demo account mode which allows you to trade in real-market conditions for free.