How to Trade Commodities


Commodities are traded in much the same way as most forms of tradable products. Traders can buy or sell different commodities with the aim of making a profit by either selling the commodity at a higher price than that at which they bought it, or buying the commodity back for less than they originally sold it for.


The nature of Spread Betting/ CFD Trading means that traders do not actually own the relevant commodity, but rather trade the underlying movement of the commodity in question.

Rolling Daily Vs Futures

Rolling Daily Vs Futures

Rolling_Daily

Rolling Daily Vs Futures

Traders will often have a choice between two different types of a single commodity; a ‘rolling daily’ format and a ‘futures’ format. As the name suggests, rolling daily is linked to the price of the commodity as it stands on a daily basis, while futures concern the price of a commodity in the days, weeks or months to come.

Rolling Daily contracts are more generally used by those looking for short-term trades; however, as the name implies, the contract ‘rolls over’ from day to day, and will continue to do so unless either the trader takes some sort of action to close the trade or the trade deteriorates to a point where the fund limit of the account is reached.

By contrast, a futures contract will close at a preset expiry date and time, whereupon either a profit or loss will be made, depending on the position of the commodity now related to its price level when the trade was first opened.

Commodity Trade Example

Commodity Trade Example

Commodity_Trade

Commodity Trade Example

Let’s have a look at an example of a commodity trade. Firstly, we need to pick a commodity. Assets will differ from broker to broker, but ETX Capital offers a large number of different assets for traders to choose from, including metals (gold, palladium, platinum and silver), energy (Brent Crude, Heating Oil, Natural Gas and Nymex Crude) and soft commodities (including corn, cotton, lumber, oats, soybeans and many more). Let’s select one of the most commonly traded commodities – gold.

We have the option of trading gold in either a rolling daily format or future format; in this example, let’s select the rolling daily option.

Let’s say that the current price of gold is 1279.6/1280 – the sell price is the former and the buy price is the latter – and I decide to trade £1 per point of movement. I make my decision on whether to buy or sell and act accordingly; the next day the stock is trading at a level of 1282.6/1283 and I now decide to end the trade.

If I originally bought at £1 per point, then I bought at 1280 and the sell price is currently 1282.6, a 2.6 move in my favour, giving me a profit of £2.60. However, if I originally sold at £1 per point, then I sold at 1279.6 while the buy price is currently 1283 – a difference of 3.4, meaning that if I were to end the trade now, I would incur a £3.40 loss.

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