Trading With Commodity Options
Dealing in commodities is one of the earliest forms of trading. Throughout the ages commodities have been exchanged and traded for subsistence, need and economic gain. More recently there has been a growing interest in commodities for investment purposes.
The strong price movements that are seen in these markets are increasingly being used to produce investment gains. Both soft and hard commodities have attracted the attention of major market players as well as investment houses, who are now actively speculating on both short and long term price movements in these assets.
Access to these markets has however often been difficult for retail investors. Many are still hard to gain to, requiring high amounts of investment capital in order to be traded. However the use of digital options contracts to speculate on price movements on these assets makes it easier to participate in the potential profits that these assets have to offer.
Soft And Hard Commodities
Commodities are classed as being either ‘hard’ or ‘soft’. The term hard commodity refers to assets that are mined and are therefore have only a finite supply. This includes precious metals, oil and gas. These materials cannot be manufactured, only extracted. Consequently their price movement tends to be dictated by both demand and the ability to maintain necessary supply.
The term soft commodities is generally used to describe agricultural commodities i.e. those that are grown. These includes most raw crops including coffee, corn and sugar. The price of these assets is also dictated by supply and demand and is greatly influenced by environmental factors which can dictate the success of harvests. As they are core ingredients used for the manufacture of most food items, changes in price are reflected along the food chain.
Commodity Binary Options
Many brokers now offer access to a wide range of commodities in their asset index. Contracts can be readily placed to take advantage of the price fluctuations found in these markets. The actual range of binary options offered will vary between brokers so you will need to check the specific assets offered in this sector if you have a particular one in mind to trade.
Below is a list of the most commonly offered commodity options available for trading via binary options and a brief insight into the commodity itself.
Gold – Once the standard for global currency exchange, Gold is still regarded as a store of wealth and a hedge against devaluation of the ‘FIAT’ currencies. Traditionally it has been difficult to invest directly in with small amounts of capital. However investing in gold with binary options makes this process low cost and simple.
Oil - A vital commodity on which the world economy relies heavily for energy, manufacturing, industrial production and transport. World oil reserves are are expected to fall with ‘peak oil’ having already been reached. The price of oil and its derivatives heavily influence valuations across a number of other global markets. High volatility offers a number of opportunities for using binary options to trade oil.
Sugar – Increased usage of this commodity in food manufacturing has driven sugar from a luxury item to a multi-million dollar industry. Sugar cane and sugar beet crops now demand high prices which is reflected through the food chain.
Coffee – As one of the world’s most popular drinks, the stimulating effects of coffee are known the world over. Green coffee beans (prior to roasting) are the most heavily traded agricultural commodity in the world.
Cotton – The product of the cotton plant shrub, this material has formed the basis for textiles for many centuries. It is grown the world over with China now being the largest producer on the planet. For the United States this crop remains the largest export, ensuring that the price is keenly watched by economists and investors alike.
Wheat -This cereal grain is now widely used in the manufacture of food products and is now only third to maize and rice in terms of total production. It is as staple food product used in the manufacture of many secondary food products. Consequently the price of this crop can have a big influence of the price consumers pay for food.