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Commodity Trading

Being one of the oldest assets of the whole family, commodity is also considered as one of the most popular form of assets in the binary options industry.

Due to its natural characteristics, this asset is categorised in the primary sector which is the sector destined to raw materials. In other words, a commodity is defined as a tangible product which generates a demand. As a result, this asset is also intrinsically linked to the Law of demand and supply. That is, for example if the demand for wheat is higher than the current amount available on the market, the prices of this commodity will surge and vice et versa.

The origins of the commodity market

 


The roots of
commodities

The history of commodity dates back to a long time ago, 8500 years BC during the agricultural revolution. At that time, commodities available were those obtained through agriculture by farmers, such as rice and wheat for example. The only form of trading practiced during these ancient times were between settlements.

However, as the commodity market and trading gradually evolved, farmers tried to find methods to protect the price of the products they cultivate. Besides, several factors such as bad climatic conditions and discrepancies between the amount supplied and the actual demand started to weigh on the market.


The evolution of
commodity trading

During the last century, assets obtained from agriculture were considered as the primary class of futures trading. Besides, in 1936 The Chicago Board of Trade (CBOT) decided to add soybeans to the list of tradeable commodity. In 1940 this list was further amended by the addition of cotton and lard. Progressively, livestock joined the closed circle of agricultural products in the 1950s. It was only during the 1960s that precious metals such as silver and copper stepped in.


Binary options
and commodity

The financial market made a big step forward with the advent of binary options in 2008. The interest in this market grew as it was now possible for producers and buyers to carry out transactions on the different commodities available anytime and anywhere with the help of online brokers. Nowadays, trading this asset consists of predicting whether the actual price of a commodity will rise or fall within a specific time period.

The origins of the commodity market.

Since 1800, the commodity market underwent a lot of changes. Besides, due to the increasing amount of assets added to this market, it has been segmented into two different types. There are the Soft commodities segment and the Hard commodities segment. Each segment englobes different assets.


Soft commodities segment

This segment includes all the assets that are obtained through agriculture. That is, soft commodities represent the commodity market in its simplest form like it was years ago. In this segment traders will have assets such as wheat, sugar and rice among others. The assets in this particular market are principally affected by climatic conditions such as typhoons and cyclones.

Therefore, if there are drastic changes in the weather, the supply of soft commodities will be reduced thus the prices of these assets will go up. On the other side, if the supply is higher than the actual demand of the market, there will be a global glut. Hence the prices will tumble.

Types of Soft commodities:
Agricultural: Corn, Wheat, Sugar, Rice, and coffee.


Hard commodities segment

The hard commodities segment concerned assets which are obtained through mining and natural resources. Hard commodities are more popular than soft commodities due to their higher life value. In this segment traders will have the opportunity to trade on silver, gold and crude oil among others. Moreover, hard commodities are so popular as they are seen as essential for the economic stability of a country.

Even if hard commodities are prefered by traders, they are not less than soft commodities as they are also affected by climatic conditions as well as financial changes. For example, if a natural forest fire slows down the output of crude prices in a country, the whole market will be affected as the prices of this asset will fall. On the other side, if there is a global oversupply of crude oil, the prices will decline.

Types of Hard commodities:
Precious metals: Gold, Silver and Platinum.
Industrial metals: Aluminium, Copper and Zinc.
Energy: Gasoline, Crude oil and Propane.

Factors impacting on commodities

Like it was said earlier, there are several factors which impact on commodity this is why this asset is considered as one of the most volatile of the industry. Here is a list of the different factors that might affect the price of this asset, either it forms part of the segment of Soft or Hard commodity.

  • The relationship between the demand for this asset and it’s actual supply. That is, if the supply outpaces its demand, the price of this specific asset will drastically fall and vice et versa.
  • Natural disaster, for example typhoons, natural fire and other climatic changes which may affect the supply of a commodity in any way.
  • Political and economical instability. As stated above, commodities are used to determine the economic stability of a country. This is why the daily political and economic news released have an impact on the market.
  • Fluctuations in exchange rates. The financial market is very complex and many assets are inter related. Therefore, the performance of this asset on the market is linked to the one of the currency market. As a result, if the US dollar lost ground, the price of crude oil will go up.

How to trade Commodities with Stellar Finance?

  • Log in your trading account. If you do not possess one, you are kindly requested to open one here.
  • Make a choice among our selection of trading tools.
  • Once you have your trading tool, click on the commodities feature which is located in the “trading tools” toolbar.
  • Choose for Call if you think the price of the asset chosen will rise and select Put if you think the price will fall within the expiry time.
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