Many traders are drawn into the financial world by the ability to trade commodities. Commodities are physical objects found or grown in nature that are then processed to make human life easier. Think of things like oil, gold and sugar.
Traders are drawn to commodities as an asset class because these physical resources are not always directly correlated to stock market movements. They can offer price action in periods when assets like shares and indices aren’t very exciting. Conversely, a commodity like gold is widely regarded as a safe-haven asset – a place to keep money safe when the heat is on (or anticipated) in other markets.
Financial traders keep a close eye on commodities like Brent crude oil, natural gas and gold because these commodities are widely traded. However, these huge global markets aren’t the only way to trade commodities.
Soft commodities can offer opportunities to diversify your portfolio, find price action not correlated to the stock market and try new trading strategies. These are resources humans can grow or tend, including agricultural products like wheat or even livestock.
Global demand for soft commodities continues to grow as the world population increases. However, the supply of these resources can be severely affected by factors like the weather. Traders who keep an eye on the supply side of soft commodities may be able to anticipate commodity price changes ahead of time based on secondary factors like the weather and use instruments like futures contracts to speculate on the potential impact on these resources.
Below are five soft commodities you can trade with an IG CFD account.
CFD (contracts for difference) trading is the buying and selling of contracts for difference – which are financial derivatives that let you take a speculative position on whether an asset (including commodities) will rise or fall in value.
Remember, CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.