Financial security is one of the most important considerations while preparing for a stress-free and enjoyable future. You can invest in many financial assets, and CFD commodities are some of the most popular options. But what is commodities trading? And what are the best commodities to invest in for the immediate future? This article overviews the different CFD commodities available in the forex market. Let’s get started.
What Are Commodities?
Commodities are a unique type of financial asset. It’s not unusual to pick up a can of corn, fill your car with gas, or grab some oranges from the grocery store. Yet, these commodities are also as important as any other class of assets like stocks and bonds.
Commodities are products that, when derived from the earth, are produced in large quantities by many producers. They represent a huge raw material for manufacturing companies, and major commodities include gas, corn, wheat, and gold.
How to Trade Commodities
Trading commodities is a way to diversify your funds and hedge against inflation, which means that commodities can rise in value during inflation compared to other assets.
However, there’s more than one way to do it. You can trade commodities through:
- CFDs
- Futures contracts
- Exchange Traded Funds (ETFs)
- Mutual Funds
- Exchange-Traded Products (ETPs)
- Buying stocks issued by companies that produce commodities
Commodity CFDs
CFDs means Contracts for differences, and it’s an arrangement made in derivative trading where the differences in the settlement between the opening and closing prices are cash settled. When trading CFDs, you aren’t settled with physical goods but cash. CFDs are popularly used in the forex market and for trading commodities.
CFDs are popular among investors as it allows the trading of commodities over a short period where investors predict the direction of the commodity’s price. Because many CFDs are short-termed, they’re usually accompanied by huge leverage from brokers. Some offer as much as 100x leverage, which allows traders to increase their profits massively.
You can trade commodity CFDs using spot or futures contracts. Spot contracts are open at a current price and can be opened or closed instantly. Futures contracts are more advanced than spot contracts as it involves some form of settlement, either that you’ll open or close a long or short position at a predetermined settlement price.
Best Commodities to Buy
Oil
Oil is one of the commonest commodities needed in everyday life. It’s used to power automobiles and ensure the smooth functioning of machines in industries and for a wide array of activities like textiles, fertilizers, steel, and lubricants.
There are several oil products designed to solve different problems, and they will continue to be one of the products that are needed. Like many other commodities, oil is affected by the law of supply and demand, which is affected by geographical and political events.
Natural Gas
Another popular commodity you can consider is natural gas. Natural gas is a great fossil energy source formed deep beneath the earth’s surface. It is extracted for use as fuel and relies heavily on the principle of supply and demand. However, its value is more protected as it is a rarer and more expensive material than crude oil.
In addition to geographical and political forces, natural gas prices are also driven by weather conditions, as there’s a higher demand for it in colder weather. Understanding the seasons of demand and supply for natural gas will help you know the best time to buy and sell natural gas commodities to make good profits.
However, as green energy gains popularity, it directly affects the demand for natural gas. So as more people choose green energy, there’s less demand for natural gas.
Copper
As the world transits into renewable energy, the copper demand is gradually rising. Copper occurs in nature as an element that can conduct heat and electricity.
Copper is highly relevant in renewable energy as it generates solar, hydro, wind, and thermal energy. It also helps to reduce CO2 emissions and reduces the energy required to produce electricity.
The future of copper is bright as it is used in making solar panels, electric cars, and electronic appliances.
Wheat
Wheat is a cereal grain grown for multiple purposes and used to produce wheat flour, an essential ingredient in many confectioneries. Wheat flour produces bread, biscuits, doughnuts, noodles, etc.
Several manufacturers use wheat flour, and its demand is high worldwide. As the world population grows, more demand for goods, including wheat flour products, will increase, and the price of wheat will rise. Hence, wheat commodities are one of the best commodities to invest in.
Gold
Gold is among the most traded CFD commodities. As a rare and precious metal, gold is continually in demand.
Gold has a highly competitive demand and is popularly used to hedge against inflation. Because of its limited availability, which is at an estimated 170,000 tonnes worldwide, the value of gold is constantly increasing.
It’s used to make jewelry and is mainly sourced from China, Russia, and Australia. It’s one of the safest commodities to invest in for the future as it’s less susceptible to geo-political factors.
Steel
Steel is obtained by mixing carbon with iron to create a stronger fracture resistance substance. It’s very inexpensive to produce and is widely employed in manufacturing.
The availability of iron ores influences the price of steel to get iron, geo-political developments, and new technologies. Steel is a great option to invest in when considering commodities, as it’s a resource used in several manufacturing industries.
Conclusion
Investing in the right financial assets is one way to be financially prepared for the future. Commodities are natural resources that are essential for our day-to-day life. Examples of commodities are wheat, copper, steel, gold, crude oil, and natural gas.
You don’t have to own these commodities in their physical form to invest in them; instead, with CFDs, you can invest in major commodities. Investing in CFD commodities will help you minimize your portfolio volatility and help you hedge against inflation.
