Commodities and Forex Trading: Understanding their Nature
Both Commodities and Forex Trading are instruments that can be traded via futures contract. This is a contract where a provider is obliged to sell or buy a certain commodity at an agreed price based on a definite delivery date. With this information, we can somehow say that Forex and Commodities trade can be dealt using similar approaches and analysis. Despite this relationship, there are also differences that one must consider in order to determine which among them suits your trading preferences. For today’s post, we shall discuss the nature of each instrument in order to have an idea how to handle trading accounts concerning them.
This trade is far more ancient than trading stocks or bonds and it has somehow managed to survive up to the modern times. Goods such as metals, energy, livestock and agriculture are still being exchanged but the trade is no longer as physical as how it was many centuries ago. Trading nowadays already takes place at commodities exchanges.
Advantages of Commodities Trading
1.The trade offers an opportunity to widen options in a particular trading portfolio
2. Chance for traders and investors to be exposed in global markets.
3. Traders experience longer market hours thereby giving more chances to to trade for a longer period of time.
4. Traders can take advantage of an opportunity to predict future market trends due to an evident seasonal trend.
5. Commodities are traded at a higher leverage compared to other goods.
Types of Commodity Traders
1. Small Speculators
These are the commodity traders who perform their transactions with the aid of brokers or sometimes through their own account. Majority of the small speculators’ population have a potential effect on commodities market rates.
This refers to the specific group of traders who are into processing, duction, or merchandising of a commodity.
3. Large Speculators
Unlike small speculators, this group of traders who have pooled their money to lessen risk factors and increase profit. Take note that this is a group of commodity traders who have their own financial advisers who serve as their guide and confidant in terms of decision making.
The market for Forex Trading typically involves connections with commercial companies, banks, investment management firms, retail forex brokers, and hedge funds. If commodities trade is older, currency or trading exchanges are the most famous financial market in the world. This trade also plays a great role in a country’s economy due to the law of supply and demand towards a currency.
Advantages of Currency Trading
1.Currencies are volatile goods so this means that a trader can have easy access on your returns when a financial emergency occurs.
2. Traders can enjoy flexible trading hours.
3. Currencies have higher leverage than commodities trade.
4.Trading with this instrument can help you diversify your experience.
5. Traders are given an option to hedge in order to lessen or eliminate political or event-based risks.
With these details being presented to you, we can see that these two instruments are somewhat related but they have certain features that make them unique from each other. To add up, you have to be aware that commodities trading is highly regulated while trading with currencies isn’t. The choice is yours, will you go for Forex or Commodities Trading? Good Luck!