Commodity trading strategies gold
Commodity trading covers the buying and selling of a large range of instruments including oil and gas, metals such as gold and silver and soft commodities like cocoa, coffee, wheat and sugar.
Commodity trading is as old as the financial markets, and perhaps even older than that. The first example of an organised exchange for trading commodities dates back to Amsterdam in These days there are a whole host of markets available to trade with just a few clicks of a mouse or taps on your mobile device, but some commodities remain as popular as ever. There are a range of commodities you can trade, including agricultural commodities such as corn, soybean and wheat. It's the energy markets, in the form of oil and gas trading, and metal markets like gold and silver , however, that tend to be more popular with traders these days.
The commodity markets are traded in a similar way to other types of financial markets, but there are some points to be aware of in order to avoid any shocks or surprises when dipping your toe into commodities trading. In this article, we focus on two of the more actively traded commodities: As these are slightly different blends of oil, the prices vary depending on which one you are trading.
Prices don't just depend on how much oil is being pumped out of the ground, for example. As economies slow and demand drops, the price of oil and other commodities also tends to follow suit. Since oil prices are also impacted by world events such as politics and socioeconomic situations, including the Middle East crisis, it helps as an oil trader to keep on top of news so as not to get caught out by an unexpected shift in oil prices.
Other factors influencing oil prices include decisions by the Organisation of Petroleum Exporting Countries OPEC and other major oil producing nations, such as Iran, on how much oil is produced and supplied to the market.
An ability to try and forecast how well or badly the world economy may fare in the months ahead is a definite plus point when it comes to trading a commodity like oil. But there is plenty of news that can cause fluctuations in the price on a day-to-day basis — and on an even shorter-term scale than that. If for example the US releases figures that show its economy is improving more quickly than expected, this could cause a surge in the price of oil as traders start to bet that demand will increase, consequently putting up the cost of a barrel.
Or it could be that an oil-producing country resists international pressure to stabilise oil prices by increasing production. This could see further slides in the oil price as investors worry that more of the commodity will be produced than is needed. It really is a market that can be buffeted by plenty of world events, so it pays to stay on top of major economic news releases.
Another enduringly popular commodity is gold, which has long been considered a store of wealth and has held a special allure for many of us — as the Californian gold rush back in the s would undoubtedly attest. Traditionally, in times of trouble and market volatility, gold is perceived as a 'safe haven' — somewhere for investors to store their money away from other riskier assets.
Although the yellow metal can in theory be traded in many currencies, the typical market quote is to price gold in dollars, usually as 'dollars per troy ounce'. This relationship to the US dollar is an important one and is another factor that will have an influence on the price of gold.
If the dollar becomes more attractive to investors and starts to rise, the price of gold will usually drop. In recent years, some people have seen the US dollar as a safe haven for their money and that has reduced the appeal of gold. This is another aspect to weigh up when trading gold: For example, if the US central bank, the Federal Reserve, decided to cut interest rates, this would normally weaken the US dollar and lift the price of gold.
As with oil, because gold is such a global commodity it pays to keep a watchful eye on the major economic announcements such as interest rates and unemployment figures, which are released on a regular basis.
The energy markets are also popular among commodity traders. No fears about over-exposing your account. If the trade behaves as the trader wishes, he gets his cost back and some extra. In trading gold, there are several things to consider before your desire to make money from it transcends from the pedestal of dreams to the reality of tangible dollars in your hands.
Firstly, there is the trade types:. Here, the trader bets on the price action touching a chosen price level called the strike price, touch or not touching that price at all no touch. There are variations such as double one touch , double touch, etc. The price of gold can decide to trade within a price range formed by an upper and lower trend line. Whether this asset decides to stay within the tunnel so created in , or break out on either side out , is a matter for the trader to decide.
A correct choice is rewarded. How about trying to decide if gold will end higher than the present price by the time the trade expires, or lower? Another way for the trader to possibly make money. These are three possible outcomes that can translate into some cash to finance that shopping spree that has occupied your mind lately. Let us now help you along the way. Its daily pip movements are anywhere between 1, pips and 10, pips. The key is to get the direction right, then set an appropriate strike price and expiry date.
If we get these three ingredients right, the trade will succeed. First, we have to ask ourselves: Traders love gold because it is a safe-haven instrument which they can buy in periods of uncertainty. The answer is a resounding YES! Eurozone uncertainty was really bothering traders.