Commodities trading may be the oldest market in history. Long before indices and equities, not to mention cryptocurrencies, traders from Europe, the Middle East and North Africa exchanged agricultural goods, jewellery, and many more possessions. Commodities still play an essential role in modern trading.
Which Commodities Can Be Traded?
Both novice and experienced traders know that every financial asset has its own characteristics. The market divides commodities into natural resources, metals, and agriculture.
Natural resources have been vital for the last couple of centuries. They provide energy for electricity, transportation, and work. Even though renewables are currently in the spotlight, the world cannot exist without natural gas and oil.
Since ancient times, metals have been used in jewellery, manufacturing, and the military industry. Nothing has changed, hasn’t it? Nowadays, people still treat gold and silver as valuable additions to their jewellery; copper is the most critical component in semiconductor manufacturing, and hi-tech devices necessitate metals such as platinum.
Traders can also invest in agricultural commodities. Their value highly depends on supply and demand, and factors impacting their price movements differ from other financial assets. Corn, wheat or cocoa prices highly depend not only on government policies but also on weather conditions, which is unusual in forex, crypto, or equities markets.
Oh, and by the way – on SimpleFX, traders can experience commodities trading with future contracts.
Countries Tied With Commodities Trading
Staying in the agricultural sector, Brazil is the biggest coffee exporter in the world, with a significant advantage over Colombia and European countries. Its GDP highly depends on the whole agricultural sector, including cocoa, cotton, and wheat. It means that Brazil should pay attention to economic regulations and policies but also prevent climate change in order to avoid weather shifts.
There are several countries exporting natural resources. The phrase “petrodollars” automatically ties in with the Middle East region. However, other countries also depend on commodities trading. Canada and Russia possess substantial oil and natural gas, while Australia is a crucial gold exporter. As a result, international politics and economies of these countries focus on exporting their natural resources.
Correlation With Other Financial Instruments
Canada’s export of natural resources impacts the whole country’s economy, not only specific sectors. It influences the currency – traders monitor significant movements after financial information about oil exports.
Brazil was mentioned above as an agricultural empire. Even so, companies like Petrobras also focus on natural resources. Traders exploring commodities trading can look at the equities market, where several companies rely on natural resources. Except for Petrobras, investors should monitor the performance of British Shell and French TotalEnergies.
Commodities Trading And Crypto
For the very first sight, commodities trading and crypto stand as far from each other as possible. However, there are at least two reasons why Bitcoin and other crypto investors should take a look at this matter.
In the United States, there is an ongoing debate about whether crypto are securities or commodities. In the first scenario – cryptocurrencies under SEC – they would have to deal with specific regulations. For example, the SEC decided to describe Ripple as security, which led to the market’s uncertainty. On the other hand, Bitcoin and Ethereum lean more towards commodities. In the dynamic world of crypto, traders have to keep tabs on up-to-date decisions not only from Americans but also from other governments.
Commodities trading and crypto connect due to not only regulations but also energy prices. Bitcoin miners generate astonishing amounts of electricity, which may come from renewables, but there are more popular sources. Energy usually comes from natural resources, and the supply and demand for natural gas can impact those cryptocurrencies that use proof-of-work.
