Alexandra PankratyevaCommodities form the basis of the world’s trading system. The advent of online trading and CFD brokerage services grants access to commodity markets to traders with a limited amount of capital. Therefore, it’s high time for you to learn more about the top traded commodities and add them to your trading portfolio.
Why should you trade commodities?
There are several major reasons to trade commodities:
Diversification
If you have an equity-only portfolio, commodities can serve as an effective tool to lower its volatility, as there is almost no correlation between commodities and other trading assets.
Safe haven
In time of market turbulence and global economic uncertainty, commodities always perform as a safe haven. They often manage to retain their value in spite of all the external factors.
Hedging from inflation
The intrinsic value of commodities is independent from currencies and their price movements. Commodities hold their value even when the currency falls as a result of inflation.
Speculation on commodity prices
Commodity markets are unique in terms of their volatility. Wild commodity price swings make them particularly attractive to CFD traders. They can try to get profit from drastic commodity price movements, regardless of the price direction.
What are the top 5 most traded commodities and why?
Being exceptionally volatile, commodities create excellent opportunities for traders to try their skills and strategies by going long or short on these markets. The list of top 5 most popular commodities among the traders all over the world include:
Crude oil
Source: ShutterstockCrude oil touches almost every sector of the global economy. The world’s major source of fuel and energy, crude oil will be holding its leading position on the commodity market for a long time into the future.
Widely used for producing gasoline, diesel and various petrochemicals, crude oil also serves as a key component in the production of textiles, fertilisers, cosmetic and even steel.
The two major drivers of the crude oil price fluctuations are the following:
Economic
An economic crisis impedes industry and individual demand for energy and their spending capacity.Geopolitical
Political turmoil and wars can greatly influence the work of oil producers in the affected area.
In the case of WTI crude oil, supply and demand play a key role in price formation. According to the International Energy Agency (IEA) global oil demand will grow due to the world’s increasing population and energy consumption, as well as the growth of petrochemical, aviation and transportation industries.
In terms of historical price action, US crude hit its all-time high of $145.31 per barrel in July 2008. The commodity’s record low of $1.17 occurred in February 1946. The latest US crude oil price as of 24 September 2019 was $57.93.
Coffee
Source: ShutterstockIf you can’t imagine your life without coffee, you may probably want to put it first place in the ranking of top commodities. However, this bittersweet-flavoured commodity ranks second among the best commodities to trade.
According to some estimates, people drink around 2.25 billion cups of coffee on a daily basis. The total global production of coffee by exporting countries is more than 150 million jute bags annually. The top 5 coffee producing countries are:
Brazil (2,595,000 metric tons per year)
Vietnam (1,650,000 m.t.)
Colombia (810,000 m.t.)
Indonesia (660,000 m.t.)
Ethiopia (384,000 m.t.)
Coffee prices are significantly driven by several factors, including:
Geopolitics. Political instability in coffee-producing countries
Climate. Coffee is highly sensitive to weather conditions and require a special combination of sunshine and rainfall.
Oil prices and transportation. As coffee growers have to transport coffee to different parts of the world, transportation costs really matter. Therefore, the price for oil, i.e. for fuel, can have a significant influence on coffee price.
Health awareness. The positive or negative sentiment about the health effects of drinking coffee.
The US dollar rate. A strong dollar can depress coffee prices, while a weak USD is good for its price.
Historically, coffee reached its all-time high of $339.86 in April 1977. Coffee’s record low of 42.50 cents per pound occurred in October 2001 at the height of the “Coffee Crisis”. The latest price for coffee as of 24 September 2019 was $98.900 (per pound).
According to the most recent data, coffee continues to get cheaper, as the price of coffee has been trending downward. Major coffee-growing countries, like Brazil, have produced an oversupply, creating a glut in the market. Political instabilities in Guatemala and Venezuela worsened the already difficult situation, as growers in remote locations struggled to get the necessary equipment.However, the prices could still potentially jump up due to weather related complications and moves in the futures market.
Natural gas
Source: ShutterstockTogether with crude oil, natural gas is the key source of energy and fuel. No wonder that it is considered one of the most frequently traded commodities.
Despite various initiatives and increasing efforts to shift towards renewable energy sources, natural gas has been still holding its grounds.
Natural gas resources are very limited and rare. It takes much time and money to explore and drill new ones. Besides, switching to new sources of fuel can’t be performed overnight. Even slight changes in natural gas supply and demand can cause significant price movements.
The key price drivers for natural gas are:
Production volume
Weather conditions
Economic growth
Supplies in storage
Substitutes
The average price for natural gas in 2017 stood at $2.99 per mmBtu. In 2018, the average natural gas price was $3,15. In Summer 2019, the prices declined amid the growing natural gas production, despite high level of export and consumption. In August 2019, the US natural gas spot price averaged $2.22 mmBtu. According to the latest EIA‘s forecast, the average price for natural gas in 2020 will comprise $2.55 per mmBtu.
The prices for natural gas strongly depend on the severity of winter weather outside. Any forecast calling for lower temperatures will drive natural gas prices higher.
Gold
Source: ShutterstockThe world’s most popular precious metal, gold will never go out of fashion. It has always been highly appreciated across different cultures and markets and has historically served as a proxy of prosperity and wealth.
One of the most widely-traded metal commodities, gold is very rare and difficult to find. The total global supply of gold is 170,000 tonnes.
There are several major reasons why gold is so popular among traders and investors. By trading gold, you can:
Hedge against inflation
Hedge against global economic instability
Speculate on a traditionally high metal’s volatility
Historically, gold reached its record high of $2,076 per ounce in February 1980. The most recent gold price as of 6 December 2018 was $1,236.
According to commodity market experts, the price for gold has good chances to go up at the end of the year. The biggest factors that may drive gold price higher are the US-China trade war truce and the US stock market sell-off.
Brent oil
Source: ShutterstockAccording to the latest energy outlook by the US Energy Information Administration, as of 10 September 2019, Brent crude oil prices averaged $59 per barrel in August, which is $13 lower than its average price in August last year. The EIA predicts Brent crude price will reach $60 per barrel in the Q4 of 2019 and will surge a little higher to $62 per barrel in 2020. The WTI oil price is expected to average $5.50 lower than Brent price in 2020.
Conclusion:
Today, all the world’s most traded commodities are just in your pocket. With the help of a reliable and trustworthy online trading platform, you can trade them even with your smartphone or laptop. CFDs changes what has been long perceived as too complicated and totally unattainable. Financial markets, and commodity markets in particular, are closer than you could imagine.
Choose any commodity you want, decide whether you feel positive or negative about its price movement, and trade.
Important: If you trade CFDs on commodities, please, bear in mind that many retail investors lose money when trading. You should consider whether you can afford to take the risk.
