Commodity Trading – A Different Way

Commodity Trading has been conducted amongst consumers and producers since the beginnings of human civilisation. Raw materials such as Iron Ore, Copper, Tin, Wheat, Salt and Spices moved around the globe on ancient trade routes such as the silk road for thousands of years. Empires rose, expanded and fell but trade continued.The situation is no different in today’s globalised modern economies. Key commodities are extracted in one continent and shipped, perhaps for thousands of miles,to consumers on another. A whole supply and logistics chain has developed to facilitate this trade, one key part of this support network is the Commodity Markets.

Priced in dollars  

Commodities such as Oil and Gold are traded in financial centres around the globe. But for the most part they are priced in US dollars. No matter whether the transactions take place in Singapore, Sydney, San Francisco or Rotterdam the US currency will usually provide the method of payment in Commodity Trading. The dollar denomination of the world’s commodity prices reflects both the size of the US economy and the dollar’s role as the global reserve currency. A role once occupied by the British Pound and one that the Chinese Yuan may someday fulfil. By extension then commodity prices are sensitive to movements and trends in the US currency, more on which later.

Accessibility

Commodity markets and exchanges were created to allow producers to find buyers for their products and for industrial consumers to access regular reliable supplies of raw materials.

Or if you prefer to facilitate Commodity Trading. As such they were professional markets,which to large extent excluded the private investor. Even today it’s difficult for private clients to directly access many of world’s commodity exchanges. By virtue of the fact that majority of contracts traded on the exchanges are deliverable. And the fact that counterparties to these contracts need to demonstrate they have access to the facilities necessary to make or take delivery of the underlying.

Furthermore as professional markets, the contracts traded on these exchanges,are often tailored to the needs of industry participants, Oil companies, Gold miners etc. Rather than individual investors. For example the CME (Chicago Mercantile Exchange) WTI Crude Oil contract is over 1000 barrels of Oil, the equivalent of almost 160,000 litres.  

Commodity Trading a different way

The lack of accessibility and the emphasis on large deliverable contracts, favoured by the world’s commodity exchanges, goes someway to explain the growth in alternatives to traditional Commodity Trading. At Blackwell Global we offer our customers access to cash settled, non deliverable contracts on three of the world’s most highly traded commodities. Which are Crude Oil, Gold and Silver. What’s more these commodities can be traded in much smaller sizes than their exchange traded counterparts. For example the minimum trade size in our spot Gold contract is 1 troy ounce or 1/100 of a standard lot. (100 troy ounces)

What’s more those interested in Commodity Trading can trade long (buy) or short (sell) just as easily as each other. Of course as our contracts are cash settled traders don’t need to concern themselves with contract expiries or delivery dates. And unlike many exchange based commodity contracts, there is only one price to monitor rather than a separate price for each delivery month.

What factors influence commodity prices and Commodity Trading

Commodity prices are influenced by a wide variety of factors. But as noted above one of the most important of these in recent times is the strength or otherwise of the US dollar.

A strong dollar has generally been seen as negative for Commodity prices whilst a weaker US dollar has generally been supportive of Commodity prices.

Commodity Trading and commodity prices, perhaps more than in any other market, are also greatly influenced by supply and demand. We need only look at how oil prices have performed since the end November 2014. When OPEC the (OIl producing nations trade body) abandoned any attempt to limit production amongst its members. Brent Crude almost halved in value inside two months and would continue to fall throughout much of 2015 before staging a rally in 2016.

Weather, natural disaster and industrial action all can and do affect commodity prices. As do changes in demand from large economies such the USA and more recently China. As such those participating in Commodity Trading need to keep abreast of international news and key economic data releases.

Our configurable Economic Calendar can help commodity traders identify and track the data releases that may affect their markets.

Contracts

Blackwell Global currently offer four Commodity Trading contracts which are  WTI (US Oil) Brent (UK Oil), Spot Gold and Spot Silver.

Contract details can be found here (see below)

• Trading Precious Metals
• Trading Oil

Once you are familiar with how our commodity contracts trade and the benefits and advantages they offer. You may wish to apply for a live trading account  and start trading them in the real market.