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The ultimate guide to commodities in Forex trading in Singapore

The ultimate guide to commodities in Forex trading in Singapore

Commodity trading in Singapore is all about making money from the price fluctuations of raw materials. These commodities also include agricultural goods such as wheat and cocoa beans, metal products such as aluminium and gold, and energy products like oil and gas.

 

What are commodities?

Commodities are traded on an open market, such as stocks, bonds and currencies. However, commodities differ from other tradable assets in that they are physical items rather than intangible assets. There are various commodities available for trading, ranging from agricultural products to energy resources.

 

How do traders trade commodities in Singapore?

There are three ways traders can trade commodities in Singapore: spot contracts, futures contracts and CFDs. Let’s look at each one in more detail:

 

Spot contracts

A spot contract is an agreement between two parties to exchange a certain amount of a given commodity at an agreed-upon price on a specific date in the future. Contracts are usually traded for immediate or short-term delivery.

 

Spot contracts have no fixed duration and no fixed delivery date, which means that you can sell them before the contract’s expiration date. It makes them very flexible when it comes to trading strategies. Moreover, spot contracts give traders direct access to the physical market, giving them accurate control over their risk exposure. Spot contracts are typically used by high net worth individuals, bankers and institutional investors who wish to trade in large quantities of commodities without involving the financial markets.

 

Spot contracts allow a trader to buy or sell a commodity at a predetermined price sometime in the future – this is known as taking a long or short position. When taking a short position, the trader sells the commodity in anticipation of repurchasing it at a lower price in the future.

 

Futures contracts

A futures contract is an agreement between two parties to exchange a certain amount of a given commodity at an agreed-upon price on a specific future date. Futures contracts are typically traded for delivery over some time, ranging from one day to several years in the future. Contracts are standardized, meaning that each contract represents the same quantity of the underlying commodity and has the exact delivery date.

 

This makes futures contracts very easy to trade – all you need to do is find someone who wants to sell you a contract, and you’ll instantly know exactly how much you’re obligated to buy and at what price. The problem is, the presence of speculators and traders looking to make a quick profit averages out the effects of those who want to hedge their exposure over time, creating a sort of equilibrium that generally prevents prices from increasing or decreasing by too much in any one direction.

 

CFDs

They are contracts agreed upon between two parties that give the buyer exposure to the price of an underlying asset without taking physical delivery of the asset. CFDs are typically traded on margin, which means that you only need to put up a small percentage of the contract’s total value as security. It makes them very accessible, even for small investors.

 

CFDs are not as regulated as futures contracts, making them riskier to trade. CFDs do not have standardized sizes, and deliverables like futures contracts do, so it can be challenging to precisely know what you’re buying or selling.

 

When trading CFDs, it’s important to remember that you’re taking a leveraged position. This means that your losses (and potential profits) will be magnified in proportion to the size of your position.

 

Summary

Commodities offer traders a way to diversify their portfolios and hedge against inflation. They can also be traded in relatively liquid markets, making them less risky than other investment options. New investors should use a reputable online broker like Saxo Bank and start trading on a demo account before investing real money.

 

 

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