Commodity trading is a popular choice for people who want to trade in the futures market or purchase physical commodities. 

But there are so many markets out there, with precious metals, energy resources, livestock, agricultural products, and more. And if you want to purchase commodities, it gets even more confusing because many of these goods are traded on a spot market, futures market, or both.

So, with thousands of commodities traded daily, how can you know which markets are the most active or relevant, and how can you understand and reduce the risks to your portfolio? 

Commodity trading guide

We will help guide you through some of the choices, by sharing an overview of the top commodity trading markets and how you can manage your risk levels through commodity trading with Finxo Capital. 

By the end of this article, you will know where to focus your research and buying efforts, as well as how you can manage your risk level on the markets. Commodity trading is a large industry that is often misunderstood, so let’s start with the basics.

1. Gold: A Trusted Asset in Commodity Trading

Gold is a foundational part of commodity trading – that is, the exchange of tradable goods. Gold’s notable role in these markets is that of a safe-haven asset, a hedge against inflation, or economic shocks and market volatility. 

As a result, the price of gold undergoes frequent volatility. 

For instance, Reuters has reported that gold prices have ‘swung wildly’ since September 2024, in response to ‘growing expectations that central banks would continue to reverse their monetary tightening to rein in inflation’. 

While the stability of gold makes it a sought-after asset, this stability can result in flat or falling prices when the economy improves.

 For example, in the first half of 2024, the price of gold dropped slightly as the US Federal Reserve raised interest rates in response to inflation. Although these dips can be trading opportunities for traders, many of them can’t afford to lose money in the short term if they aren’t prepared for the volatility. 

Finxo Capital provides real-time pricing information and risk-management tools, so traders can spot these dips and act quickly to mitigate losses when trading gold.

2. Crude Oil: A Volatile Market in Commodity Trading

Oil, for example, is still one of the most actively traded commodities, with geopolitics and global supply-demand dynamics having a significant impact on prices. The oil market continues to show both opportunities and risks ahead. 

In July 2024, the price of a barrel of oil shot up when OPEC+ announced production cuts. Once climbing rapidly, prices stabilized. However, these types of price surges can be quickly reversed by shifts elsewhere in global supply or demand.

However, to join the oil trade, traders need to be ready for a high degree of volatility. Finxo Capital offers futures contracts for Brent Crude and West Texas Intermediate (WTI). Moreover, geopolitical tensions or a natural disaster can lead to very sharp, volatile price swings.

3. Natural Gas: A Market Sensitive to Weather Patterns

Commodity trading for natural gas is a particularly volatile market, due in part to the seasonal weather patterns that fluctuate with the onset of summer or winter – and, at least in the US and parts of Europe, as a result of the changing policies of energy companies.

On a particularly cold winter, for instance, demand for heating will rise, and so, too, will prices. 

A milder winter or increased reliance on renewable energy will depress the market, driving prices down.

In August 2024, natural gas prices soared, due to more heat than expected during the summer in the United States, driving up demand for electricity and air conditioning. However such volatility is risky, and traders have to be careful about the state of play. 

Finxo Capital offers natural gas futures contracts, but you will want to have proper risk management in place, such as stop-loss orders, to limit large losses when the market swings without warning.

4. Copper: A Key Industrial Commodity

Copper is the material of choice for construction, and as a key ingredient for everything from solar panels to electrical cables, the metal has a major role to play in the commodity trading sector. 

Its price moves according to the pace of economic growth, especially in emerging markets, so recent data on copper demand trends are interesting.

Over the past year, demand for copper has boomed as global economies have returned to pre-pandemic norms and expanded infrastructure for renewable energies.

Yet, given the fickle nature of global economic slowdowns or trade disruptions, copper prices fluctuate, blowing up their values and sometimes crashing. Furthermore, in mid-2024, copper prices was down slightly when traders were worried about reduced demand from one of the biggest copper consumers, China. 

With Finxo Capital, traders now have access to copper futures, placing them in an opportunity position to participate in this fluctuating ecologic resource market. However, it’s imperative for them to keep up with macroeconomic trends and prepare to cash out on short-term price fluctuations.

5. Wheat: A Crucial Agricultural Commodity

 Wheat is an important commodity that fuels commodity trading and is crucial as the world’s food demands increase. 

At the same time, wheat prices are volatile because of all the geopolitical events, weather, and government policies, such as the Russian invasion of Ukraine in 2022 that has disrupted global wheat supply and caused global wheat prices to soar.

When wheat prices spiked in June 2024, at the same time as production levels in Russia, the US and other major producers fell behind expectations, it created trade opportunities but also emphasized the risks inherent in trading agricultural commodities. 

Weather patterns and geopolitics are key factors traders have to keep an eye on at all times. 

Thanks to Finxo Capital, traders can now access contracts on wheat futures, thereby creating hedging opportunities to combat inflation or ensure that their portfolios will capitalize on market fluctuations.

At the same time, Finxo Capital makes sure that traders are aware of the risks involved and emphasizes the need to fight them.

Commodity Trading – Best Trading Practices

 Trading commodities is a high-reward, high-risk market. Here are some tips to help you get the most out of it.

 – Conduct Extensive Research – Before trading, it’s important to know why commodities are moving the way that they are. Is it an economic trend, a geopolitical event, or are we seeing the reflection of seasonal weather changes? 

With access to the latest feeds of market events via platforms such as Finxo Capital, you can be well-positioned to take advantage of the most high-value trading opportunities.

 – Manage Your Risk: Commodity trading is a volatile sector and can suffer wild swings, especially if it involves oil or natural gas. Nevertheless, you can insulate yourself against losses with the use of hedging practices like stop-loss orders. Finxo Capital has a comprehensive suite of tools for traders to customize risk parameters to suit their requirements.

 – Set realistic expectations. Don’t expect to get rich quickly; trade patiently and realistically over the long term. The commodities market is inherently unpredictable, and unrealistic expectations can lead to excessive risk-taking.

 – Diversify – Buy a wide range of commodities so that your trades are not concentrated in one industry. For example, if you want to trade in both commodities and livestock, trade in both metals like gold and agricultural products like wheat.

 – Use leverage cautiously – leverage can magnify both tradings and losses. Finxo Capital allows you to trade with leverage, but be aware of the risks involved with increased leverage and use it wisely. 

Commodity Trading Recent Market Developments

According to recent updates from Reuters, the following commodities have experienced notable market activity:

 – Gold: With global economic uncertainty in play, gold prices moved back and forth over the period to September 2024. Both markets, watching momentum shifts in central bank policies, as well as fears of inflation, kept trading in gold in a narrow band – reflecting its safe-haven status.

 – Oil: Crude oil prices surged in July 2024 with OPEC+ production cuts, though rising non-OPEC production has tempered recent price hikes. Volatility remains in oil markets with continuing geopolitical tensions and supply disruptions possible.  

 – Natural Gas Demand for natural gas spiked in the summer of 2024, especially in the US, where hot weather drove greater energy usage. Natural gas, though, is especially sensitive to the seasons, and traders need to prepare for slips in warmer weather.

Risks Involved in Commodity Trading

While commodity trading offers exciting opportunities, it comes with several risks:

 – Volatility: Commodity prices often change quickly according to factors such as geopolitical events, weather and overall economic trends. A hurricane in the Gulf of Mexico, for instance, can shut down oil production along the US coast, driving prices sharply upward. 

Leverage Risk: Gains and losses can be multiplied by using leverage. Traders should consider the risk that they could lose more than they trade if the market moves against them. Finxo Capital provides leverage management tools, but traders need to use them properly.

Liquidity Risk: Some commodities (especially niche agricultural products) have lower liquidity, and it can be more difficult to buy or sell at the price you want. For example, wheat or coffee are harder to trade in their ‘off’ seasons, when trading volumes are lower.

Finxo Capital will help traders overcome these challenges by providing tools like stop-loss orders and data on next-minute prices. 

Commodity Trading – Why Trade with Finxo Capital?

Finxo Capital is a premier platform for beginner and advanced traders, and for those who want to engage in commodity trading. Here are some reasons why Finxo Capital is a great fit for you.

  – Access to Major Commodity Markets: Finxo Capital provides futures contracts for a wide array of resources like gold, oil, copper and agricultural products.   

 – Customised Risk Management Options: And stop-loss orders and trailing stops are just some of the many customizable risk-management features that help traders avoid losses and limit their risk when trading.  

Real-time market information and expert analysis equip traders with the knowledge to make important decisions and understand why they are trading the way they are. Comprehensive market data also helps traders understand how the market is moving and where it’s headed.

But traders need to know that commodity markets carry with them certain risks and that, to avoid

So with this guide under your belt, this is your opportunity. Get into commodity trading, and make the most out of it by learning how to take risks and inform yourself.

As with any other commodity, this is all subject to volatility, and if you have a balanced, well-rounded way of thinking, you’ll be on the right track to long-term success.