In trading, commodities are used as underlying goods, i.e. tradable products, on which a given financial market is based. Their price is determined based on the market.
Underlying assets refer to various types of markets:
According to many risk-averse traders, an underlying, commodities, is chosen as a low volatility, legible and predictable asset. Prices such as oil and gold are not very volatile and are stable.
Commodities are the raw materials, extraction and cultivation, which are generally not very perishable over time and are placed on the market as exchanges. They are basic material resources, Hard Commodity such as: Crude oil, coal, aluminum, copper, gold, silver, palladium and platinum, and agricultural products, Soft Commodity such as: salt, sugar, tea, coffee, beans, soy, rice and wheat. Practically all goods necessary for the survival and well-being of human beings.
There are also other categories of Commodities that concern energy products: gasoline, ethanol, natural gas, naphtha, oil. Meat: cattle, dairy cattle, pigs. To be easily negotiable on international markets, commodities must be stored and conserved over time, without losing their original characteristics.
The most important commodities are: raw materials, energy, cereals, metals, meat, colonial and tropical products, fibers and timber. Commodities are the financial instrument of choice for many professional traders, who also dedicate a substantial percentage of their investments in commodities.
Financial investments are characterized by an enormous quantity of available underlying. All the stocks on the world's stock exchanges are huge. There are three main commodities present in the commodities trading market:
The commodities trading market is characterized by much greater clarity. It doesn't meet the complexity of other markets such as Equity or Forex or binary trading.
It may be very convenient to trade commodities due to their volatility. Volatility represents the change in price over a given period; the greater the change over the period considered in percentage terms, the greater the volatility. Phases of high or low volatility will also be visible at first glance by observing the amplitude of the price bars in their range from maximum to minimum; longer bars indicate high volatility, while short bars represent limited volatility.
Predict the future evolution of commodity prices by carefully studying the movements of prices on financial markets through Technical Analysis and Fundamental Analysis.
Technical analysis is the study of market movement through the systematic use of mathematical graphs and indicators to predict future price trends. It studies and analyses the historical price series, and, with a good approximation, it identifies both the inversion points of the various market cycles and the duration of the various phases of the trend, facilitating the negotiations and their timing.
Signals are generated based on the identification of certain graphic situations that tend to occur with a certain frequency and trigger foreseeable price movements, the main objective of this methodology is to identify the best time to enter and exit the market.
One of the objectives of the technical analysis is to identify the levels of buy and sell through rigorous operating techniques, to identify with extreme precision, the best time to intervene in the market (market timing). The point is not to buy at the lowest possible price or sell at maximums, but to buy and sell at the right time.
Technical analysis claims that the movement of prices in the commodities trading market is the product of a sum of human actions and, as such, reflects the psychology and behavior of man, who when faced with similar situations, tends to act always in the same way. In the positive phases it will tend to condition the market with its greed and euphoria, while in the negative phases it will condition them with its fear and tension.
Through the fundamental analysis, the trader who intends to operate with the trading commodities, studies the identification and the forecast of the economic/financial variables and the macroeconomic and microeconomic factors referred to the issuer of a certain financial instrument, on which the evolution of the price quotations can depend. Unlike technical analysis, fundamental analysis, it considers the market to be a rational and efficient environment.
The data concerning the economy, which influence the currency of a given State, are those concerning: Balance of Payments; Interest rates; Inflation rate; money supply; Budget (debt/deficit); State income (GDP); Labour market; Productivity.
Other macroeconomic data that influence currencies in the Forex market are: confidence indicators, consumer and business confidence. In Italy the most important are Ifo and Zew, named after the institutes that issue them. In practice, they report on current confidence and on optimistic or pessimistic expectations for the future, economic developments and consumer confidence.
These confidence indexes, based on the tendency of consumers to purchase goods, goods and services, thus making money circulate, assume a high value, on the contrary the index assumes low values if consumption decreases. In practice, this means that the relationship that is created depends on the spending power of consumers.
All this information is listed daily on the Economic Calendar, where professional Forex traders, in real time, draw on the news before studying strategies that will lead to secure profits.
Indicators concerning economic activity in general concern: the manufacturing sector, the main indicators are: SMEs, Ism manufacturing, Philadelfia Fed Index.
In most cases, those who are about to enter the world of online investments do so through what are now the most well-known tools and strategies, as well as working on securities and currencies. There is also another way to trade, less known but equally valid for the newbies of the sector, and it is the one that operates directly on raw materials, also known as commodities. In this case, of course, it is not really a question of buying or reselling the raw material itself, but of using some of the available instruments such as CFD contracts or binary options to invest in them.
Therefore, commodities are real and tangible products, raw materials that can be classified as soft and hard. The first macro-category includes all the products that are cultivated or raised, the second those that are extracted from the soil. Going even more specifically in the cataloging:
Not all of them have the same value and convenience, among those most used as assets during operations there are: metals, oil and some raw materials for cultivation such as sugar, coffee and corn. Why is it better to invest in some of them and less so in others? The answer lies in the increased volatility of one product over another. The high volatility indicates that over time there have been significant price changes for the asset in question, so the trader knows that he can make great gains when there is an upward swing.
Oil is certainly among the most used raw materials to trade, but we recommend caution because of some aspects that should not be underestimated. In fact, the price is considerably influenced not only by the market demand and by the political relations between producers/importers but, above all, by the quantity of stocks held by the various Countries and which can give us an idea of what its demand could be over time.
Copper is extremely volatile, and its price is therefore very volatile. This is due to the strong demand from developing countries, which is at the same time drying up their stocks.
Gold is known and classified as a haven, i.e. it is always a guarantee of investment. Its market value is not expected to fall sharply, but it can fluctuate sharply upwards and is still highly sought-after.
Once you are informed about which are the various commodities on which you can make investments, you move on to accurately choose the broker or trading platform to start your trades. They generally offer the possibility of using CFDs (contracts for difference), i.e. an instrument that allows products to be bought or sold without physically owning them but based on the value of the asset. Going into more detail means that the purchaser makes a profit if the value of the asset closes upwards, goes into a loss if it decreases; the seller, on the other hand, makes a profit if the price decreases and a loss if it increases.
Most brokers offer the possibility of investing in commodities. The first thing to do is to check the presence or not of the product on which you have decided to operate and what tools they make available. The difference in the choice is mainly this aspect, some offer one or more instruments (CFDs, binary options etc. ...) usable, others perhaps only one, or only some raw materials among the assets. The good thing is that you can start making investments and testing platforms by opening demo accounts that will allow you to get familiar with commodities.
A safe investment comes from a valuable material: exploiting diamonds in investment guarantees savers a good profit margin that they can exploit in the long term. We try to understand better how this system works with little risk and good profits over the months.
The Relative Strength Index (RSI) is widely used by analysts who want to invest in trading, especially those who trade in Forex, the futures market and stock markets. Please note that this article can be converted into PDF and used as a practical eBook. After having carefully verified its application with Bollinger Bands, we see its functioning in other contexts as well.
We have seen how, in the field of technical analysis, it is also necessary to consider in depth the psychological aspect that in fact can influence the market even in a more than decisive way.
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