Trade Commodities with OCL

Commodities, whether they are related to food, energy, or metals, are an important part of everyday life. Anyone who drives a car can become significantly impacted by rising crude oil prices. The impact of a drought on the soybean supply may influence the composition of your next meal. Similarly, commodities can be an important way to diversify a portfolio beyond traditional securities—either for the long term or as a place to park cash during unusually volatile or bearish stock markets, as commodities traditionally move in opposition to stocks.

The commodity markets are rising in popularity due to their high volatility. OCL offers our clients a platform to trade with gold, oil, silver and other commodities.

What are commodities?

Commodities are goods that are more or less uniform in quality and utility regardless of their source. For instance, when shoppers buy an ear of corn or a bag of wheat flour at a supermarket, most don't pay much attention to where they were grown or milled.

Commodities, whether they are related to food, energy, or metals, are an important part of everyday life. Anyone who drives a car can become significantly impacted by rising crude oil prices. The impact of a drought on the soybean supply may influence the composition of your next meal. Similarly, commodities can be an important way to diversify a portfolio beyond traditional securities—either for the long term or as a place to park cash during unusually volatile or bearish stock markets, as commodities traditionally move in opposition to stocks.

There are still multitudes of commodities exchanges around the world, although many have merged or gone out of business over the years. Commodity trading in the exchanges can require standard agreements so that trades can be confidently executed without visual inspection. For example, you don't want to buy 100 units of cattle only to find out that the cattle are sick, or discover that the sugar purchased is of inferior or unacceptable quality.

Types of Commodities

The tradable commodities fall into the following four categories:

Agricultural Commodities

This includes raw goods such as sugar, cotton, coffee beans, etc.

Energy Commodities

This includes petrol products like oil and gas.

Metal Commodities

This includes precious metals such as gold, silver and platinum, but also base metals like copper.

Livestock Commodities

This includes pork bellies, live cattle and general livestock, as well as meat commodities.

What Commodities Can I Trade with Olikriet Capital?

With Olikriet Capital you have access via CFDs to 18 of the largest commodities traded in the commodity market, plus 20 CFDs on commodity futures. Here are some the commodity CFDs available :

Why trade Commodities?

Forex trading is attractive because of its following benefits:

High-potential market

Global population growth has exploded since the beginning of the twentieth century. The population growth creates demand for infrastructure, which could have a significant impact on the demand for both metal and energy commodities. In addition, more people means there are more mouths to feed, which will affect the demand for agricultural commodities. Ultimately, more people leads to more demand, which means that commodity prices are likely to continue to increase over the long term.

Fighting against inflation

Inflation is the rate at which prices increase, and means that today's money will have less purchasing power in future. In terms of commodities, it means it will cost more dollars to purchase the same amount of a given commodity in future. By investing in commodities directly, however, savvy traders can protect themselves from these price increases, and could potentially benefit from selling the commodities for a higher price in future.

Diversify your portfolio

Many investors do not have a diversified portfolio. If the market in which they are investing has a down turn (e.g. if the real estate or stock market crashes), their portfolio will take a significant hit. If you have invested in a range of assets, on the other hand, the individual investments in falling markets will be affected, but the overall portfolio will be insulated, as other markets will remain stable or might even climb. Commodities are one asset class that can be added to your portfolio to create diversification and better manage risk.

How to trade commodities?

There are a range of ways you can trade commodities, including investing in the physical commodity itself, trading commodity futures, trading commodity options, trading commodity ETFs, and trading CFDs on commodities. We outline each of these options below.

1. Physical Commodities

One way to invest in commodities is to go directly to the source and purchase your goods (e.g. purchase oil, or gold, or sugar directly). Over time, if prices rise, you could find a buyer and pocket the difference in profit.

2. Commodity Futures

One of the benefits of trading commodity futures is the use of leverage, which allows traders to make a larger trade than what they could purchase outright with their available funds. For instance, if a futures contract is offered with leverage of 1:10, this means that for dollar the trader is willing to invest, they can access $10 worth of the commodity in question.

3. Commodity Options

Like futures, options are another type of derivative that allows you to trade on the changing value of a commodity without having to purchase the commodity outright. Options also benefit from leverage, like futures.

4. Commodity ETFs

An ETF, or an exchange-traded fund, is a fund that invests in a group of financial assets. As a trader, you can then invest in these funds via a broker, or on a stock exchange. One of the main advantages of investing in commodity ETFs is the diversity that comes with investing in a range of assets via a fund, rather than picking individual assets to invest in. However, this can also mean you miss out on large movements that take place in individual commodities.

5. Commodity CFDs

Like options and futures, CFDs (Contracts for Difference) are another derivative instrument that can be used to trade commodities. CFDs allow traders to speculate on the changing prices of commodities, and other assets, without ever owning the commodity in question. The simplicity of entering and exiting positions, compared to other trading vehicles like options and futures, is just one reason why trading commodity CFDs is very popular.

Risks and money management

Forex trading brings an opportunity of high margin, but it also comes along with high risk. Here are 5 important

Forex risk management tips to help you manage your investment and reduce your risk.

Learn to manage your investment in Forex

The Foreign Exchange market is a very volatile and unpredictable market, so it’s better to trade “conservative amounts” from your disposable income. It might sound obvious, but the first rule in currency trading, or any other kind of trading for that matter, is to only risk the money you can afford to lose. Many traders, especially beginners, skip this rule because they assume that it “won’t happen to them”. Similar to gambling at a casino, you wouldn’t take all the money you have to the casino to bet on black. It’s the same with trading – don’t take unnecessary risks by using money you need to live.

Make a Forex trading plan

Have a Forex trading plan and stick to it in all situations. A trading plan will help keep your emotions in check and will also prevent you from over-trading. With a plan, your entry and exit strategies are clearly defined - and you know when to take your gains or cut your losses without becoming fearful or greedy. This brings discipline into your trading, which is essential for successful Forex risk management. To properly manage your Forex risk, you need a trading plan that outlines:

When you will open a trade

When you will close it

Your minimum reward-to-risk ratio

The percentage of your account you are willing to risk per trade

And more…

It stands to reason that the success or failure of any trading system will be determined by its performance in the long term. So be wary of apportioning too much importance to the success or failure of your current trade. Do not bend or ignore the rules of your system to make your current trade work.

Make good use of risk management tools and techniques

Control your risk with a stop loss

A stop loss is a tool to protect your trades from unexpected shifts in the market. Simply, it is a predefined price at which your trade will automatically close. So if you open a trade in the hope that an asset will increase in value, and it decreases, when the asset hits your stop loss price, the trade will close and it will prevent further losses. (Just note that stop losses aren't a guarantee - there can be cases where there are gaps in prices when an asset won't hit the stop loss, meaning the trade doesn't close.)

There are different types of stops in Forex. How you place your stop loss will depend on your personality and experience. Common types of stops include:

Equity stop

Volatility stop

Chart stop (technical analysis)

Margin stop

Limit your use of leverage

Leverage, in a nutshell, offers you the opportunity to magnify profits made from your trading account, but it also increases the potential for risk. Your level of exposure to risk is therefore higher with a higher leverage. If you are a beginner, avoid high leverage. Consider only using leverage when you have a clear understanding of the potential losses. If you do, you will not suffer major losses to your portfolio - and you can avoid being on the wrong side of the market.

Use take profits to secure profits

Once you have clear expectations, one way to secure your profits is by using a take profit. This is a similar tool to a stop loss, but with the opposite purpose - while a stop-loss is designed to automatically close trades to prevent further losses, a take profit is designed to automatically close trades when they hit a certain profit level.

You would set your take profit at your target profit level (let's say, 40 pips), and your stop loss would be half that distance from the opening price of your trade (in this case, 20 pips).

Diversify your Forex portfolio

A classic risk management rule is not to put all your eggs in one basket, and Forex is no exception. By having a diverse range of investments, you protect yourself in cases where one market might drop - the drop will be compensated for by other markets that are experiencing stronger performance.

With this in mind, you can manage your Forex risk by ensuring that Forex is a portion of your portfolio, but not all of it. Another way you can expand is to exchange more than one money pair.

Prepare for the worst

No one can predict the Forex market, but we do have plenty of evidence from the past of how the markets react in certain situations. What has happened before may not be repeated, but it does show what is possible. Therefore, it's important to look at the history of the currency pair you are trading. Think about what action you would need to take to protect yourself if a bad scenario were to happen again.

Learn to master your emotion

Forex traders need to have the ability to control their emotions. If you cannot control your emotions, you won't be able to reach a position where you can achieve the profits you want from trading.

When a trader realises their mistake, they need to leave the market, taking the smallest loss possible. Waiting too long may cause the trader to end up losing substantial capital. Once out, traders need to be patient and re-enter the market when a genuine opportunity presents itself. Or traders who are emotional following a loss might make larger trades trying to recoup their losses, but increase their risk as a result. The opposite can happen when a trader has a winning streak - they might get cocky and stop following proper Forex risk management strategies.

Ultimately, don't become stressed in the trading process. The best Forex risk management strategies rely on traders avoiding stress, and instead of being comfortable with the amount of capital invested.