This week we are looking at commodities and giving you a brief explanation of what they are and why the prices move. The article was written by Dominic Picarda of the Investor’s Chronicle and the Financial Times.
Commodities - What Are They?
Some of the hottest action in financial markets over recent years has been in commodities. Many fuels, metals, and agricultural products have experienced enormous price swings.
Crude oil, for example, shot up by over 50% in the first seven months of 2008, before collapsing by 75%. This is illustrated in the chart below. Such movements have created exciting opportunities for traders.
Commodities are the raw materials used for things like food, clothing, power, construction and industry. With Tradefair Spreads, you can speculate on a variety of these goods. As well as mainstream products - like crude oil, gold and copper - you can also trade platinum, lean hogs, and carbon emissions.
Commodities are mainly dealt through futures contracts. These are agreements that trade on special exchanges. For example, the seller of a futures contract might agree to deliver 1,000 barrels of oil to the buyer in six months' time at a price of $55 per barrel. Spread bets on commodities are based on these futures prices.
How To Play The Game?
Gluts and shortages of commodities play a big part in commodity pricing. A poor harvest might send cocoa prices soaring. Or, copper prices might tumble if it turned out that China had built up an unexpectedly large stockpile of that metal.
Important economic trends also influence commodity prices. A strong global economy often results in rising prices for energy and industrial metals, as industry uses more of these products when times are good. Gold frequently does well during times of nervousness, as investors tend to treat the precious metal as a safe haven.
Until next week, happy trading
The Tradefair Spreads Team
'Trading Commodities' written for Tradefair Spreads by Dominic Picarda of the Investor's Chronicle and the Financial Times.
The above comments do not constitute investment advice and neither Tradefair Spreads nor Clean Financial accept any responsibility for any use that may be made of them.
Risk Warning:
Spread bets carry a high level of risk so you should only speculate with money you can afford to lose. You can lose more than your initial deposit and stake. Before you open an account, please ensure that spread betting matches your investment objectives, familiarise yourself with the risks involved and if necessary seek independent advice.
Article provided / approved by Tradefair Spreads which is a trading name of London Capital Group Ltd which is authorised and regulated by the Financial Services Authority (FSA), FSA Register number 182110.
Tradefair® is part of the Betfair Group.
'Trading Commodities' edited by DB, updated 14-May-09
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Risk Warning:
Please note that spread betting and CFD trading carry a high level of risk to your capital. You can lose more than your initial deposit. These products may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.
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