What are Commodities?

What is a Commodity?

A commodity is a basic good or raw material that is interchangeable with other goods of the same type. Common examples include gold, oil, and wheat, which are used in commerce and traded on financial markets.

Types of Commodities

Commodities are often the raw materials used to produce more complex products and can be categorized into two main types: hard commodities and soft commodities.

Hard commodities are natural resources that must be mined or extracted, such as gold, oil, and natural gas. Soft commodities are agricultural products or livestock, such as wheat, coffee, sugar, and cattle.

What Are the Advantages of Commodity Trading?

As an alternative to traditional, most popular trading instruments, commodity trading has its own benefits as well as some risks to consider.

Protects Against Inflation: Commodity trading helps hedge against inflation as rising demand for goods increases raw material prices.

High-Leverage: Commodity derivatives like futures and options offer high leverage, allowing significant trading positions with minimal upfront margin.

Hedge Against Politics: Trading commodities can mitigate portfolio losses during geopolitical tensions by capitalizing on price changes due to supply chain disruptions.

Diversification: Commodity trading provides diversification, spreading risk across multiple assets and reducing the impact of single product fluctuations.

What Are the Disadvantages of Commodity Trading?

High Volatility: Commodity prices are highly volatile due to supply and demand fluctuations and external factors, making risk management challenging.

Speculation: Volatility attracts speculators seeking short-term profits, leading to frequent price fluctuations and market instability.

Environmental Issues: High demand can lead to environmentally harmful practices by suppliers despite efforts to promote sustainability.

Leverage Risk: While leverage allows control of large investments with a small margin, it increases risk, with minor market changes potentially causing substantial losses.

Trading vs Investing in CFD Commodities

Trading commodities focuses on short-term gains through speculation on price movements using instruments like futures and CFDs. This active strategy requires frequent monitoring and technical analysis, offering flexibility, high liquidity, and potential for quick profits, but it also involves higher risks due to market volatility.

In contrast, investing in commodities aims for long-term growth and portfolio diversification. Investors might buy shares in companies that produce or trade commodities or invest in ETFs that track the overall commodity market. This passive approach emphasizes fundamental analysis and provides a hedge against inflation and economic instability, offering reduced risk and stability over time.

Create Your zForex Trading Account

Opening your online trading account with zForex only takes a few steps!

• Visit the zForex registration page,
• Select "Create Account,"
• Complete and submit the registration form,
• Confirm your email address,
• Check the e-mail containing your login details.

Make your first deposit and enjoy your 30% tradable bonus right away!

Benefits of Trading Commodity CFDs with zForex

zForex prioritizes the entire experience of its traders, from improving their financial literacy to helping them track their trading activities after each execution. Here’s how we achieve this;

• Lightning-fast execution
• Extensive range of products
• Comprehensive educational resources
• Competitive, tight spreads
• Secure and simplified trading platform
• Latest expert analysis
• Multilingual support team available in 9+ languages

Create a trading account today and join a community of successful traders!