FOREX COMMODITY MARKET
A foreign exchange commodity market is a place where the buying and selling of raw or primary products other than currency are being conducted. They are approximately about 50 major commodity markets worldwide that engage in investment trades in approximately 100 primary commodities.
They are majorly two types of commodities. Soft commodities are mostly agricultural products which are normally grown. They are subject to spoilage thereby creating high volatility in a short term. This plays a huge role in soft markets in that it makes predicting supplies very difficult. They include wheat, corn, soybean oil, coffee, sugar oats, barley, sorghum etc. hard commodities are those commodities which are usually mined from the ground or gotten from other natural resources. Most investors mostly focus on this commodities than they focus on soft commodities. This is because of the easy handling system of hard commodities. They include gold, platinum, palladium, silver copper, aluminum, lead, tin, aluminum alloy, nickel, steel and iron ore.
In the forex commodity market, the most direct method of investing in commodities is simply by buying into a futures contract. This future contract puts an obligation on the holder to buy or sell a commodity at a predestinated price on the delivery date in the future.
TYPES OF TRADERS THAT TRADE COMMODITIES IN THE FOREX COMMODITY MARKET
COMMODITY BUYERS AND PRODUCER
These are the first type of commodity traders present in the forex commodity market. They mainly use commodity futures contracts for hedging purposes in which they were originally intended for. These set of traders take advantage of an actual commodity when the futures contract expires. For example, the hedge against the risk of losing money if the price of a crop falls even before the crop is harvested can be done by a farmer. The crops future contract can be sold when the crop is planted which guarantee a static price for the crop at the time of its harvest.
These are the second type of commodity traders in the forex commodity market. These are traders who trade in forex commodity market for the sole purpose of profit maximization from the volatile price movements. They don’t take delivery of actual commodity when the futures contract expires. Many of this index futures are used mostly by brokerages including portfolio managers to counter risk. Moreover, since equity and bond markets do not trade side by side with commodity markets, investment portfolio diversification can, therefore, be used by commodities.
VARIOUS FORMS OF FOREX COMMODITIES FOUND IN THE FOREX COMMODITY MARKET
CRUDE OIL AND NATURAL GAS
For many years now, West Texas Intermediate was the world most traded commodity in the forex commodity market. This was seen as the benchmark used in oil pricing. It is majorly the commodity of Chicago Mercantile Exchange’s oil future contracts. Crude oil can be light or heavy and it is seen as the first form of energy to be mostly traded. Oil is traded in units of 1,000 barrels which is 42,000 US gallons while natural gas is traded in units of 10,000mmBTU.
Precious metals currently traded in the forex commodity market include metals like gold, platinum, palladium, and silver. According to the world gold council, industrial growth is major determined by Gold. The prices of Gold is very volatile and it is driven by large flows of conjectural money. These set of metal are highly in demand in the forex market. Most times, they are seen as a huge sum of currency since they are basically traded in exchange for money.
Industrial metals being traded in the forex commodity market include copper, aluminum, lead, tin, aluminum alloy, nickel, steel and iron ore. These commodities bring about tremendous growth in the size of the market. Aside from being highly liquid, they are also very volatile.
Agricultural commodities seen in the forex commodity market includes grains (wheat oats, barley, sorghum etc.), food like vegetables, fiber, lumber like timber or forests and livestock like cattle. A lot of regulatory bodies actually defines agricultural products to ensure their safety in consumption by humans.
In the forex commodity market, the annual production of well-polished diamonds is approximately 18 US dollar. Just like gold, diamonds are very easily authenticated and durable. It has a very stable price in the commodity market unlike other metals and it is also very liquid.
In conclusion, these foreign exchange commodity markets are very liquid in nature and have an increased degree daily range and volatility appeals to traders looking to implement strategies aimed at profit maximization from short-term trading. This makes them a market of high interest for intraday traders. In trading commodities, the best way to trade is by using commodity prices and being observant on how quickly they respond to various commodity market movements.