In the midst of turbulent economic conditions, diversifying investment portfolios can effectively mitigate risks. Apart from high-risk stocks and securities, trading in commodities is a viable option to hedge risks. The global leading financial asset trading platform 4E supports trading in various commodity derivatives such as gold, silver, crude oil, and natural gas, offering leveraged long and short positions from 10 to 300 times with just a simple three-step process to open a position.
What is commodity trading?
Commodities are typically raw materials used to produce other products, possessing both commodity and financial attributes, traded in circulation outside of retail sectors. These goods are used in industrial and agricultural production and consumption, representing bulk material goods traded in large quantities. In the financial investment market, commodities refer to standardized, tradable goods widely used as industrial raw materials, such as crude oil, non-ferrous metals, steel, agricultural products, iron ore, and coal. Commodities are classified into energy commodities, basic raw materials, and agricultural products, known for their significant price fluctuations, large supply and demand, ease of grading and standardization, and ease of storage and transportation. The commodity market includes spot markets, futures markets, and derivative markets.
What are the advantages and risks of commodity trading?
Commodity trading offers numerous advantages, such as higher liquidity compared to other alternative investment asset classes. Commodity futures contracts and investments in commodity companies generally have good liquidity.
Diversification and risk reduction. Many investors limit their portfolios to stocks and bonds, increasing the concentration of risk. Commodities can provide investors with portfolio diversification, thus spreading risk.
Inflation protection. Similar to real estate, commodities are tangible assets with a high correlation to inflation, effectively combating inflation. As most commodity prices tend to rise with inflation, commodity assets serve as an effective hedge against inflation.
However, commodities also have disadvantages. Over the long term, commodity returns are generally lower than stocks and bonds. Commodities have longer cycles and higher volatility. There are many factors influencing commodity prices, leading to significant price fluctuations.
What factors influence commodity prices?
There are various factors influencing commodity prices, including supply and demand, economic cycles, seasons, and climate.
For industrial goods, agricultural products, and other commodities, supply and demand are the core factors determining price fluctuations. Generally, when supply exceeds demand, commodity prices decrease, while when demand outstrips supply, prices rise. Supply factors involve inventory, production, exports, while demand factors include consumption, imports. In addition to short-term supply and demand, commodity traders must also consider the cyclical patterns of supply and demand.
Economic cycles are also critical factors involving changes in demand. Weak demand negatively impacts commodity prices, whereas strong demand has a positive effect. Commodity traders adjust positions according to economic cycles, affecting prices. During economic overheating, commodities often perform well, while during stagflation periods, investors may abandon commodity trading.
Commodity trading exhibits seasonal patterns for various commodities such as crude oil and agricultural products, which are also influenced by climate conditions. For example, oil prices may rise during hurricane seasons.
Interest rates and the US dollar exchange rate. In most cases, the US dollar exchange rate and commodities exhibit an inverse correlation, especially for gold, as commodities are priced in US dollars. However, this relationship is not absolute, as the US dollar may also rise alongside commodities.
Policy and geopolitical factors. Policy adjustments related to futures or financial markets can impact commodity prices, including macroeconomic policies, exchange rules revisions, fee policy adjustments, etc. Additionally, geopolitical situations are crucial, especially for gold and oil. Conflicts in the Middle East, for example, may drive up gold prices due to safe-haven demand, while disruptions in oil supply can lead to price increases.
Interconnectedness of varieties. Commodities have diverse classifications and types, with certain correlations between them, possibly even affecting each other significantly. For instance, within the non-ferrous metal sector, the price movements of copper, zinc, and aluminum are highly correlated.
4E Commodity Trading, supporting up to 300 times leveraged long and short positions
The globally leading financial asset trading platform 4E supports trading in various commodity derivatives such as gold, silver, crude oil, and natural gas. The 4E platform offers leveraged long and short positions from 10 to 300 times, enabling investors to control a larger number of contracts with smaller capital, thereby amplifying potential profit opportunities. The platform is stable, transparent, with low fees, and the minimum trading volume is only 0.01 lots, less than $10, making it especially suitable for beginners, lowering the entry barrier.
4E focuses on providing investors with a simple and convenient trading experience, dedicated to offering a broader investment platform. Through the 4E platform, investors can trade in a wide range of international financial markets, covering hundreds of popular assets such as cryptocurrencies, stocks, indices, commodities, and forex. The platform offers the lowest trading fees, rapid trade execution, excellent customer service, enabling you to seize investment and trading opportunities promptly. Whether you are a novice or seasoned investor, you can find suitable investment products on this platform to preserve and grow your wealth.