About Commodity Trading

Commodities is a term that is commonly used by commodity investors and commodities traders to describe trading activity in the commodity market that is carried out by traders, investors and speculators.

In commodities trading a trader can buy or sell a commodity. A trader will buy a commodity instrument if they think the value of the commodity trading instrument is likely to appreciate in the future. A Trader will sell a commodity instrument if they think the value of the commodity trading instrument is likely to depreciate in the future.

The Market is an over the counter market which means trading is carried out through a network of the big international banks; this commodity network is commonly referred to as the interbank network. This interbank commodity network consists of banks and brokers which are in different locations. These interbank network is responsible for providing the prices at any particular time to the traders and other commodity market participants who want to buy or sell commodity. In commodities trading the price is constantly changing and this commodities price is denoted by what is known as a Commodities Quote. In Commodities the Price is displayed as a Commodity Trading Quote. This commodity quote is constantly changing and the interbank network will update automatically the current commodity quote and commodities traders can then trade the commodity trading instrument at the current commodities price.

Commodities Quotes

trading prices of commodity instruments is displayed using Commodities Quotes. This is the price at which any trader wanting to trade this commodity instrument will trade at.

Because commodity instrument commodities prices are constantly changing it means that commodities traders can take advantage of these price movements to make profits by trading these price movements. The price of any commodity instrument will keep moving because of demand supply. This is because there are many participants commodity trading instrument in the open commodity market and therefore this means that the price quotes will get determined by the current market forces. These market forces may be determined by factors such as an increase in demand for commodity.

Commodity Trading Pips

In commodities trading the price moves are measured in points commonly known as Pips in the market. The pip is used to calculate the profit or loss that a Trader makes in a particular trade. For example if a trader makes a trade which moves 50 pips in his direction, then the profit of the trader will be calculated as 50 commodity pips. Pip in commodity is represented as the second last decimal point in the Commodities Quote and it is made up of pipettes - pipettes are fractions of a Commodities Pip.

Commodity Trading Lots

In commodities trading - commodity trading instruments are traded in units known as commodity lots or commodity contracts.

Trading Leverage

Because not many commodities traders can afford to trade large units of commodity contracts, there is leverage in commodity which means that commodities traders can borrow money and use the borrowed money to make trades with. For example commodity leverage of 100:1 means that a trader with capital of $10,000 can borrow upto 100 times using the 100:1 leverage option and therefore after borrowing using this leverage the trader will have a total of $10,000 multiplied by 100, which means the trader will have a total of $1,000,000. This leverage is what makes Commodity Trading accessible to retail traders because retail commodities traders can begin with little capital of their own and use commodity leverage to borrow the rest of the money required for trading. Money that the trader deposits is referred to as the trader's margin and a trader can continue borrowing money using this leverage option as long as they have the required commodity margin in their commodity account. This is why traders must have the required account balance in their commodity account to open the trades they want to.