Rule of thumb
In reality, most individual investors are not interested in the underlying asset traded with futures, but in the potential profits available from these contracts
This is why more and more transactions are handled as “Over-The-Counter” or OTC with such brokers as us, using the financial instruments Contract for Differences (CFDs)
Trading using CFDs and other derivative instruments typically allows one to participate in the market movement of a given commodity, without the necessity to deal with the physical goods with all their consequences
Commodities are extremely important not only to the general economy, but also to companies and individuals. Commodities are essential as raw materials in order to produce goods. If commodities
or these raw materials are not available or expensive, the final products will also be significantly expensive for the consumer. The range of commodities available is very wide, from wheat, cattle to oil or gold.
The trading on some commodities concentrates mainly in the countries where they are produced. An example may be orange juice, which is a commodity that has been traded in the United States for decades, while other countries simply import and consume this commodity.
Commodities are traded on exchanges, the most popular being the Chicago Mercantile Exchange (CME) and New York Mercantile Exchange (NYMEX). In these exchanges, commodities are traded via futures contracts, which obligate both sides to finalise a transaction on a previously specified date, price and other conditions.
Prices presented in media services or news services are usually the contract futures prices traded on exchanges, which in turn are based on the supply and demand of the commodity.
The historical reason to use futures contracts is very prosaic and results from the obvious reasons that commodities may not be delivered “instantly” as other financial instruments. Therefore, in order that both sides secure the value of the transaction from the volatility that may occur until the delivery, future contracts are used.
There are many factors that could be taken into consideration by an astute trader following the fundamental outlook of the commodity markets. Everyday in the media some information can be found that may significantly impact the demand or supply side of the given commodity, affecting the price in the short or possibly even long term. Which events or circumstances may be of importance for the analysis of the commodity market?
Here is our checklist of the key factors, along with the guidelines for their interpretation:
- natural resources
- extraction possibilities/technology
- legal acts
- weather conditions
- political conditions
- economic recession
- economic growth
- experts opinions