Currency pairs are not the only things that can be traded and although Forex has grown into the biggest trading market in the world, investors have not forsaken commodities. What made them so difficult to trade in the past was the fact that these goods were difficult to acquire in large quantities and in the absence of ownership, no trade was possible. Fortunately, technology has progressed a lot and the new financial systems make it possible to trade commodities, thanks to the CFDs.
The acronym stands for contract of difference and pretty much the same principles that govern the world of currency trading apply. One party will agree to pay the difference between the current price of the underlying asset after a period of time passes. In case the difference is negative, the payment will be made the other way around, so it is very simple to make money by trading commodities in this manner, as long as you can predict the way an asset will fare.
During these trying times, paper currency is no longer regarded as a safe investment by many and that’s why traders have changed their focus to commodities. Gold for example is regarded as an excellent counter for printed money and with the prices soaring recently, it comes as no surprise that most of the ones trading CFDs are including gold in their preferences. Oil, grains, softs and energies are also very popular and thanks to leverage, it is possible to reduce the collateral and deal with prohibitive lot sizes.
Speaking of which, commodities are being traded now in the same way as currency, stocks and futures, but the difference is that smaller lot sizes should be used, for increased flexibility. Furthermore, it is possible to create diversified portfolios so when you are trading CFDs, you will be able to mitigate the risks by using various hedge opportunities. The market is very dynamic and in order to stay one step ahead of the game you need to improvise all the time and adjust to change.
Trading commodities requires a broker and just like with foreign currency, his role is essential on the long run. The fees, spreads but also the trading platform and software can make a big impact on your success. Whether you want to trade full lots or fractional lot sizes, the broker will facilitate your attempt and grant you access on a trading market where fortunes can be made overnight.