In 2021, the commodity market showed incredible growth, well ahead of small-cap and tech stocks. So, for example, the cost of lumber has increased almost fivefold compared to the pre-COVID-19 period. Why not consider this market as one of the most potentially profitable areas? In this article, you will learn about the features of CFD trading commodities.
What Are Commodities
In simple terms, commodities are products that are found in the natural environment and their waste. Among the main subjects of speculation on the market are the following:
- Energy raw materials (oil, gas-propane, and diesel fuel);
- Metals (copper, aluminum, and gold);
- Grain (wheat, corn, and oats);
- Industrial raw materials (lumber, sulfuric acid, and rubber);
- Food (meat, coffee, and spices).
The complete list includes about 100 items. Commodities account for roughly 20% of all international trade. The key feature of this market is that all the products are interchangeable, and it does not matter for investors who produced them.
Benefits of CFD Trading
Many different instruments allow you to participate in commodity trading. Contracts for Difference are considered one of the most convenient. They let you profit by betting on the price change of the picked product without purchasing the asset itself. Conveniently, you can benefit from both the rise in the price and its fall.
If you decide to invest in CFDs, you get access to all the world's commodity markets from one account and can choose one or several items of interest to you. At the same time, to start trading, you do not need to have large start-up capital. This format is convenient in terms of diversifying your financial flows. High leverage, when used wisely, can help you increase your profits. Also, by investing in commodities, you protect yourself from the effects of inflation since, as a rule, the prices for these items rise during challenging periods.
Where to Invest in 2021
The commodity market is quite large, and it might be tricky to choose the direction that will bring you income. In addition to lumber, which is described above, there are three other main promising areas. First of all, it is gold, the value of which reached its all-time high in 2020. And although it has slightly dropped since then, the trends show a possible increase again. Next comes crude oil, the demand for which is increasing with the gradual opening of borders and the restoration of transportation. It is planned that at the end of 2021 (starting in September), its price will get higher. Next come base metals, in particular copper, which posted the most significant gains this year.
Assess the Risks Correctly
Commodity prices are shaped by global supply and demand and, therefore, are highly dependent on international events. It is in the extremely high volatility that the main risks lie. Price fluctuations can bring both significant benefits and catastrophic losses. Moreover, CFDs have their own dangers, in particular, due to the high leverage. Before investing in commodities contracts, carefully study all the trends and get ready for potential losses.
