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What Affects the Price of Commodity?
Commodities include many products belonging to three main groups such as precious metals (gold, silver); energy (Brent oil, WTI) and agriculture (coffee, sugar) ... are an important part of financial markets.
The main factors affecting commodity prices are:
- Supply and demand: This is the key factor that determines the price of a commodity. When the demand for goods increases, the price also increases and vice versa.
- Storage and transportation: All items have an actual physical form in the supply chain and therefore need to be stored and transported prior to distribution.
- Geopolitics and economy: Production and consumption both involve many different countries, so geopolitical instability in crude oil producers will cause crude oil prices to rise. Conversely, an economic downturn will reduce the consumption as well as the price of crude oil.
- Value in USD: Commodity products are priced in USD, so when the price of USD increases, the value of goods will decrease.
- Seasonality: In Asia, many people like to buy physical gold during Tet. The price of agricultural products is often greatly influenced by the season, the harvest time is often abundant, so the price decreases, on the contrary, the planting season will increase the price."
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To trade commodities like Brent oil, WTI oil with CFDs, below are the recommended steps.
1. Choose a trusted broker. There are plenty of brokers on the market, like MiTrade, IG, Capital. Among them, we would recommend MiTrade for its 0 commissions, low spread and flexible leverage. MiTrade is also licensed by ASIC, a world-renowned licensure used by many legitimate exchanges.
2. Enter a contract for difference: this means you will exchange the difference in price between when the trade was opened and closed.
3. Choose your leverage amount (fixed or variable) based on your goals.
4. Withdraw your winnings!
Diversification: Don’t put all your eggs in one basket! Use this to reduce your risk, but limits short-term returns.
Inflation Hedging: Use your oil investments to hedge against inflation in the future.
Speculation on commodities prices: Feeling confident? Invest in future speculation to get big winnings today.
If you are someone who can skillfully track and manage world events, while understanding the ins and outs of popular commodities like gold, silver, oil and their derivatives, then you may be able to make an attractive profit from investing in commodities. Learn what moves the commodity and you can minimize your risk.
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