Commodities

The commodity market provide most commonly traded commodities including precious metals and crude oil, with an average daily trading volume exceeding $ 3 trillion.

What is a commodity?

There are a wide range of commodities, but in the financial investment market, the most commonly traded commodities are bulk commodities. Bulk commodities refer to commodities that are homogenized, tradable, and widely used as industrial raw materials. They are divided into three major categories: energy commodities, raw materials, and agricultural and sideline products. The most familiar ones are crude oil, non-ferrous metals, steel, agricultural products, iron ore, and coal. In these years, the global focus on the existing limited resources has been increasing, and the relative investment value of the resources has also been increasing, making the transaction volume of such resources increase progressively year by year. For example, in the case of gold, crude oil, and other resources, those price changes and related analysis have become a daily concern for the general public. Many investors have learned to formulate their own investment strategies and invest in them through the trading platforms of TREX trade (TREX trade Platforms). Want to know our commodity transaction costs? Click here.

Precious metals trading (PMT) is one of the most popular commodities in the investment market. PMT refers to the process of investors earning a price difference when the precious metal market is bullish. It can also be a hedging method adopted when the economic outlook of the precious metal market is undervalued to realize the preservation or appreciation of assets. The most popular precious metal investment products on the market, which mainly include spot gold (also known as London gold) and spot silver (also known as London silver), can be traded on the TREX trade Platforms, not through physical transactions but through margin trading. For spot gold, its daily trading volume is up to more than 1 trillion US dollars, so it is known as the world’s largest stock. Its trading is spread over major markets around the world, such as London, Zurich, New York, Chicago, and Hong Kong, so no institution or consortium has sufficient financial strength to control this huge market.

What factors may influence the price of precious metals? U.S. dollar

The U.S. dollar has a very close relationship with gold because gold is denominated in U.S. Dollars. In the market, traders generally use gold as an alternative investment product for U.S. dollars. Therefore, they have an inverse relationship, which means that when the price of the U.S. dollar rises, the price of gold will fall.

Political unrest

Political events may also have a major impact on the gold price. For example, in some countries, there are conflict incidents. This will generally trigger traders’ anxiety about the security of the country’s bonds or currency. Therefore, to avoid risks, traders mostly choose to withdraw funds to purchase gold in this situation.

Supply and demand

The gold price will drop if the supply of gold is higher than the demand for gold. Similarly, if the demand for gold increases but the supply of gold is insufficient, the gold price will rise.

Global financial crisis

When the financial systems of the United States and other major western powers show unstable factors, the world’s funds will be invested in gold, the demand for gold will increase, and the price of gold will increase in most cases. At this time, gold plays the role of a capital hedge.

The largest crude oil products currently traded on the investment market are U.S. oil and U.K. oil.

U.S. oil, also known as West Texas Intermediate Crude Oil (WIT), is a light, low-sulfur crude oil produced in the United States. It has good liquidity and high price transparency and is one of the three major benchmark prices on the world crude oil market. Meanwhile, trading in such crude oils as benchmarks has come to dominate commodity futures globally.

U.K. oil, also known as Brent Crude Oil (Brent), refers to the oil produced in the North Sea. Its price also plays an important role in the world crude oil trade.

What factors may affect the main price of crude oil? U.S. dollar

Crude oil prices have historically been closely linked to the U.S. dollar. However, they are negatively correlated. For example, if the U.S. dollar continues to depreciate, the actual amount of crude oil denominated in the U.S. dollar will decline, leading suppliers to increase crude oil prices as a countermeasure to maintain the relative stability of crude oil value. Similarly, if the U.S. dollar appreciates, crude oil prices will fall.

Supply and demand

The price of crude oil will drop if the supply of crude oil is higher than the demand for crude oil. Similarly, if the demand for crude oil increases but the supply of crude oil is insufficient, the price of crude oil will rise.

Economics and politics

Although crude oil is usually traded at futures prices, current economic events will affect these price fluctuations. For example, the political turmoil in a certain country will also affect the supply of or demand for crude oil to some extent, which will lead to fluctuations in crude oil prices.

Most of the commodities are traded on futures contracts. These contracts are operations where you can buy or sell commodities at a specified price. In this way, you don’t need a specific space to store physical commodities, such as several hundred barrels of crude oil or several thousand tons of gold.

Commodity traders generally have one of the following three characteristics:

Hedger: As the trend of commodities is often the opposite or unrelated to the trend of other investment products, traders often buy or sell commodities to help manage risk.

Speculators: Traders who hold views on specific commodities and are willing to take corresponding risks for profit.

Broker: A company or an individual that executes an order to buy or sell commodity futures contracts on behalf of a trader.

The leverage for commodity trading can be up to 1:150.

The trading of commodities uses leverage to magnify the amount of investment. Different products have different leverages. At present, the highest leverage for commodity trading is about 1:150. For example, investing $100 can make a transaction worth $35,000. Risk management in commodity trading is very important. High leverage can increase your profits, but it can also bring significant losses.

The function of hedging in commodity trading

The futures market and the spot market are two independent markets, but they will be affected by the same economic factors, so they have the same price trend. Therefore, traders can trade in opposite directions in the two markets, respectively, to use their profits earned in one market to make up for their losses in another market and then achieve a hedge. For example, if the current price of gold falls, contracts for gold futures can add value. And for commodity trading, there is no difference between the bull and bear markets. Commodity trading just offers traders opportunities in both bullish and bearish markets.

Low costs for Commodity trading

Commodity traders basically do not charge any transaction fees and only profit from spreads. In the commodity market, the spreads offered by the TREX trade are at the lowest level in the industry, with gold spreads as low as $ 0.26 and crude oil spreads as low as $ 0.036. Click here for specific charges.

Initial margin

Initial Margin refers to the amount of money required to be paid by a trader when placing an order.

Day trade margin and weekend margin

Day Trade Margin refers to the margin amount the customer must have during the trading hours. If they do not, they will be required to offset the position.

Weekend Margin refers to the margin amount the customer must have to carry the position overnight. If they do not, they will be required to offset the position.

Spread

A spread refers to the difference between the bid and ask prices. For traders, the smaller the spread, the lower the cost of trading.

In the long run, the spread can greatly affect the general profits or losses of day traders but have little impact on those of mid- and long-term traders.

There are two prices for Commodity: The buy price is called "BID", and the sell price is called "ASK". A spread refers to the difference between the bid and ask prices.

The calculation mode is provided as follows:

Gross profit or loss = (ASK-Bid) × contract unit × traded lots + overnight interest (if any) - commission (if any).

Example 1:

You trade through TREX trade Platform: buy 20 lots of spot gold
(1 lot = $100), the Bid is $1,170.99, and you sell your commodities at the Ask of $1,171.99 on the same day.

Then, the gross profit or loss:

Gross profit or loss = (ASK-Bid) × contract unit × traded lots ± overnight interest - commission
=（1171.99 - 1170.99）x 100 x 20 ± 0 - 0
= $2,000

Example 2:

You trade through TREX trade Platform: sell 5 lots of U.S. oil
(1 lot = $1,000), the ASK is $ 52.945, and you buy your commodities at the Bid of $51.445 on the same day.

Then, the gross profit or loss:

Gross profit or loss = (ASK-Bid) × contract unit × traded lots ± overnight interest - commission
=（52.945 - 51.445）x 1000 x 5 ± 0 - 0
= $ 7,500

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