Tag: Trading Basics

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Forex Basics

The Beginner Trader’s ABC’s of Forex Trading

Is it really possible to make money in the financial markets? It absolutely is. With that being said, you must know what steps to take to be successful. The beginner’s guide that we provide here will help you to start earning straight away.  Learning, Learning, and More Learning Not having the right education is the […]

Is it really possible to make money in the financial markets? It absolutely is. With that being said, you must know what steps to take to be successful. The beginner’s guide that we provide here will help you to start earning straight away.  Learning, Learning, and More Learning Not having the right education is the […]

Is it really possible to make money in the financial markets? It absolutely is. With that being said, you must know what steps to take to be successful. The beginner’s guide that we provide here will help you to start earning straight away. 

Learning, Learning, and More Learning

Not having the right education is the main reason why we will never be the CEO of JP Morgan Stanley tomorrow. To obtain the desired position, we study at school, we study at university, we go on a refresher course, etc. If we successfully overcome all this, we will have the opportunity to occupy the desired position. Are there many people in high-ranking and highly paid positions who have no education? They are not there at all. Therefore, to achieve something, we must study.

It is the same with currency trading. If your desire is to be a trader, you must first learn how to do it. A consistent and successful trader in addition to what he once learned, is constantly improving and learning new methods and ways to increase his income. Therefore, if you want to have the opportunity to earn money on Forex, start by studying the educational materials your broker will provide you with kindness. Trade within a demo account before you start trading in a real one. And don’t save money on your education.

Test, Test, Test

Did you lose your first deposit? Do you think trading is not your thing? That’s not so. Anyone with an average IQ has enough talent to trade in Forex. However, not everyone will have enough determination. As I have already reported, the first difficulties always discourage us, and we tend to be quite reluctant to continue. Here the situation is similar, the first losses are the first difficulties. We should focus and overcome the problems.

It is essential and necessary to know very well the causes of the problems and then start again after they have been eliminated. We must know that this is the only way to succeed in trading. Do you think the advanced traders we’ve seen before have never had a loss? They have in fact, and now too. But they can overcome the losses and make sure the loss doesn’t affect the end result. Remember, no matter how the team played, the final score only matters.

Update Your Trading Strategy

As you learn and read more and more trading methods, your own methods will lose relevance. Don’t stay in one place. If you found a good approach to trading, met a new pattern, read about a new indicator, don’t be afraid to try. Modify your current trading strategy, try the new pattern. It may be something you’ve been looking for! Then, never stop there, always go further. The market changes constantly, therefore, you should be changing.

Sharing Your Experiences

The longer you trade, the more hands-on experience you get. And the hands-on experience is the most valuable trading experience. You can read a lot of trading books, but your knowledge will not give you any results if you have never traded in a real account. The community of traders is huge, and there will always be people whose experience is greater or less than yours. In other words, some traders can teach you something, and some traders can learn from you. Always share your experience with traders of your level, this can bring a lot of benefits to your own result, plus you can expand your network of contacts. These are basically the main points you should start with if you have decided to change your life and move towards success.

Common Beginner’s Mistakes

Well, we’ve defined what you must do to succeed in trading. But, as in other businesses, there are many difficulties in currency trading. Therefore, I would like to warn you about the typical mistakes that beginner traders make, to avoid them.

  1. I want to earn quickly. 

We all want to succeed as soon as possible. And often this desire plays a bad joke on us. When we want to look for big profits, we usually start not respecting the rules of our system, not complying with our business plan, and this leads to an inevitable loss of money. If your desire is to succeed, convince yourself that what you need is to achieve success little by little, it is a path that you have to travel step by step. There are many times when success can come quickly. But as experience shows, people are usually not prepared for this and cannot develop this success).

  1. Misunderstanding of leverage principles.

Leverage is a unique mechanism that brokers provide to their customers, and if you can use this mechanism correctly, it will become an ally for you. If you use it incorrectly, it will become the cause of your losses. Before you start using leverage in your trading, make sure you understand how it works, know the principle of its use, and how it will affect your performance. Simply put, don’t employ high leverage, for stable earnings, 1:100 is enough. Let’s take an example, the trader, whom we have studied in detail work before, does not use leverage above 1:30.

  1. Lack of money management.

Overall, it’s a pretty important issue. To put it briefly, money management is a complex of measures you take to better manage your funds. The basic points of any money management are the correct management of your funds, the calculation of risk parameters, the management of leverage, the recording of statistics of executed operations, the operation with a small part of its capital, and other points. Money management is basically mathematical at the level of your wallet. He always knows how much money his wallet has, how much he’s going to buy, and how much money he’ll have left after he buys it. The same goes for your Forex account. You must know the amount you want to win if you succeed and how much you will lose if you fail. The result obtained by your operation should not surprise you.

  1. Operate for a long time.

This is the time you spend trading. If your time is distributed correctly and effectively, you are always in a good mood and for this reason, nothing, in terms of psychology, prevents you from thinking correctly and making the right trading decisions. The result of such work will almost always be positive. If you are operating day and night, your brain gets tired and cannot respond adequately to current events. This results in irritation, exhaustion, inability to think rationally and make decisions, which negatively affects your trading performance. Define the appropriate period to work and do not work too much.

How to Maximize Profits

Among the benefits of being able to trade on their own, the markets offer you many opportunities to earn extra money in trading. If you’re not too tired, let’s move on!

  1. Transaction Copy System

Remember when we were studying the case of the successful trader, what I said is that this trader did his trade publicly. This is done to receive additional income from people who copy their operations. Remember, the reward? Well, the transaction copy system allows inexperienced people to make money. Simply select the trader, whose trading performance you like and copy your trades. In return, you will share a fixed share of your earnings with this trader. I think this is little compared to the fact that they will do all the work for you and make money for you. In this system you can earn as a trader, start trading, and in addition to your own profits in your account, you will receive a commission from the investors who copy it. If you want to earn money as an investor, simply copy successful trades and make a profit without any effort. You decide!

  1. The Affiliate Programme

Brokers are always very interested in being able to develop their business more and thus be able to attract new customers. They make profits by receiving commissions for the transactions made by their clients. They themselves do not always manage to attract a sufficient number of new customers. That’s why Forex brokers often turn to the help of existing customers, offering them the opportunity to make money by attracting new customers. In other words, if you operate on Forex and your friend also wants to start trading on Forex, you can conclude a partnership agreement with your broker, in which the broker will pay you a portion of the commission that the new customer you have attracted will pay. Or you can even pay him a fixed amount for each new customer attracted. I think it’s a good deal.

  1. Contests for Traders

The main brokers usually hold different contests with good prizes among their clients. For example, there are popular traders contests, in which participants are given a period of time, such as a month, during which they must trade in their accounts and display the result. The top three that performed the highest returns receive broker awards. In a recent contest, a trader from Malaysia made a profit of 314% for one month, starting trading with USD 100. And the broker, as a first prize, gave the trader a check for 5,000 USD. There might be someone in your place, for example, you.

Conclusion

I think I’ve put forward enough arguments that you can and should make real money on Forex. No matter how you do it, there are many opportunities. What you need to do is not be passive and start moving.

Categories
Forex Psychology

Is Forex Trading Addictive?

Trading addiction is a real problem, not unlike alcoholism or gambling addictions. Trading strongly stimulates the reward center in one’s brain and we become addicted to that rush. Trading can cause us to feel a rollercoaster of emotions, including euphoric highs when we win big. Those with a serious problem become addicted to the highs […]

Trading addiction is a real problem, not unlike alcoholism or gambling addictions. Trading strongly stimulates the reward center in one’s brain and we become addicted to that rush. Trading can cause us to feel a rollercoaster of emotions, including euphoric highs when we win big. Those with a serious problem become addicted to the highs […]

Trading addiction is a real problem, not unlike alcoholism or gambling addictions. Trading strongly stimulates the reward center in one’s brain and we become addicted to that rush. Trading can cause us to feel a rollercoaster of emotions, including euphoric highs when we win big. Those with a serious problem become addicted to the highs and lows and find themselves unable to stop. Unfortunately, trading addiction causes some of the same issues that drug addicts or alcoholics face because it can wreck relationships, cost one their job, and it usually leads to financial ruin. The good news is that there are ways to manage this so that trading can be practiced correctly and in a healthy manner.

Are you here because you think you might already be addicted to trading? One of the most common scenarios involves a beginner winning big because they get lucky, then they lose everything and try to win it back. The amateur trader then continues to lose more and more as they try to dig themselves out of the hole they have created, rather than knowing when to walk away. Someone that is addicted goes through financial resources that aren’t meant for trading. By that, we mean that anything you invest in trading should be disposable income. If you’re using grocery or bill money to trade with, it isn’t a good sign. 

Borrowing money from others, taking out loans, and selling personal items are other signs that one might be addicted to the rush of trading. People don’t always recognize trading addiction or realize how much it can affect them or their loved ones because it isn’t talked about as often as drug, alcohol, or gambling addictions. Once someone realizes that they have an addiction to trading, they might try to pull themselves out of it on their own. This can lead to disaster.

The best thing to do is to explain your problem to your friends and family so that they can understand how the addiction is affecting you. Those that don’t trade themselves might understand the way you’re feeling and why you’re spending all of your money once you explain this to them face to face. Seeking professional help is your best bet to solving the problem as a professional can help you recognize and overcome the problem.

Professional traders must have self-discipline and they need to be able to sit out when the market isn’t right for trading. Addicted traders need to feel the rush of trading and are more likely to make impulsive decisions, trade at bad times, and wipe out their trading accounts. Once a trader becomes addicted, they need to seek help to keep the problem from affecting their everyday life. This doesn’t mean that you have to give up trading for good, but a professional can help you manage your problem.

For example, you could set aside a certain amount of disposable income for trading from your weekly paycheck and never invest more than that at a time. Or you could mark out certain days of the week where you promise your significant other (or just yourself) that you won’t trade. If you run out of your weekly trading allowance or feel bored on a day where you aren’t supposed to trade, you could read articles and do research to improve your trading education. Or you could trade on a demo account to improve your skills. 

Finding healthy alternatives versus investing money and trading constantly will help you to be more in control of your actions. Taking all of these steps can certainly help one to overcome the problems that result from trading addiction.

Categories
Forex Psychology

How to Prevent FX Trading from Being Overwhelming

On the outside, trading looks pretty straight forward, you just guess whether the markets will go up and down, easy right? That is the view that a lot of new traders have, it isn’t until they actually get into trading that they come to realise how much there actually is, and learning it is a […]

On the outside, trading looks pretty straight forward, you just guess whether the markets will go up and down, easy right? That is the view that a lot of new traders have, it isn’t until they actually get into trading that they come to realise how much there actually is, and learning it is a […]

On the outside, trading looks pretty straight forward, you just guess whether the markets will go up and down, easy right? That is the view that a lot of new traders have, it isn’t until they actually get into trading that they come to realise how much there actually is, and learning it is a full-time job.

When you first get into trading, it is hard if not impossible to understand all the information that is being thrown at you, and every day new patterns or ways to analyse the markets are coming to light which makes it a never-ending learning process. Plans that have been created can be made obsolete a few hours later due to a single bit of news, things change within the markets and it can frustrate you, but the key to being a successful trader is overcoming those stresses and adapting to the markets.

When your plans aren’t working and things are going against you, it is often the case that you need to make some decisions, and quickly. This creates an additional time pressure that you really do not need. Do you stay with your current plan or strategy, or do you need to make a new one? Each second that you wait is the situation moving further away from you, it can feel that there is too much information and not enough time to process it.

In order to overcome this, or at least some of it, it is good to look at yourself and see how it is that you actually perceive your time. Sounds like a strange thing to say, but when you are in that panic mode, everything seems like it is moving 10 times faster than it actually is, your thoughts are racing but you aren’t actually coming up with any solutions, in order to combat this, you need to regain the structure that you had before things went wrong.

A way of doing this is to actually have several plans at the same time, have a plan for one market conditions, a plan for another and so forth, this way, no matter what happens you have a plan and know exactly what to do, this won’t prevent losses, nothing can, but it is at least a way to give you a structured guide on what you need to do when certain things happen within the markets. Simply refer back to the most relevant plan rather than panicking and struggling to adapt.

Doing this will make you feel that you are back in control of your trading, it will alleviate a lot of the stresses and you will feel far better for it.

Categories
Forex Course

38. Two Types of ‘No Dealing Desk’ Brokers

Introduction

Introduction

Introduction

In the previous lesson, we have discussed the two major classifications of forex brokers – Dealing Desk and No Dealing Desk. In this lesson, we will dig a little deeper and understand the types of No Dealing Desk brokers.

No Dealing Desk brokers can be classified into two types:

  • ECN brokers
  • STP brokers

What is an ECN broker?

An ECN broker is a forex broker expert that uses electronic communication networks to provide clients with direct access to other participants in the exchange market. Also, since these brokers consolidate prices from several other market participants, they usually offer their clients tighter bid/ask spreads. However, this tight spread is compensated by a small fixed commission charged by the brokers.

ECN brokers are NDD brokers, who do not pass the clients’ orders to market movers. Instead, they find participants in a trade electronically and then pass the orders to liquidity providers.

Understanding ECNs

As the name suggests, ECNs provide a network for buyers and sellers to participate and execute trades in the market electronically. These brokers make this possible by providing access to information on the orders being entered by the participants, and by facilitating the execution of these orders.

This network is designed to match the Buy and Sell orders currently traded in the exchange. And when the price requested by the client is not available, it provides the highest bid and lowest ask in the market.

What is an STP broker?

STP brokers, or Straight Through Processing brokers, are the ones who pass the clients’ orders directly to their liquidity providers. As discussed, the liquidity providers include banks, hedge funds, investment banks, etc. In this system, no intermediary or such will be involved in the execution of the order. Hence, the unavailability of the Dealing Desk makes the broker’s electronic trading platform Straight Through Processing (STP).

Moreover, with the absence of an intermediary (Dealing Desk), the brokers will be able to process orders of the clients much faster and without any delays.

Looking it the other way, STP brokers benefit from having many liquidity providers, because an increase in the number of liquidity providers increases the chances of the orders being filled for their clients.

Additionally, each time a client places a trade through an STP platform, the STP broker will make a profit. As STP brokers do not take the opposite of the clients’ trade, they add a minimal extra spread when quoting a bid/ask rate. And this small markup to the spread is passed to the clients via its electronic platform.

This completes the lesson on different types of No Dealing Desk brokers. Take the quiz below to know if you have got the concepts right.

[wp_quiz id=”54414″]
Categories
Forex Basics Forex Daily Topic

The Babe Ruth Syndrome

In his book More than you know, Michael J. Mauboussin tells the story of a portfolio manager working in an investment company of roughly twenty additional managers. After assessing the

In his book More than you know, Michael J. Mauboussin tells the story of a portfolio manager working in an investment company of roughly twenty additional managers. After assessing the

In his book More than you know, Michael J. Mauboussin tells the story of a portfolio manager working in an investment company of roughly twenty additional managers. After assessing the poor performance of the group, the company’s treasurer decided to evaluate each manager’s decision methods. So he measured how many of the assets under each manager outperformed the market, as he thought that a simple dart-throwing choice would produce 50% outperformers. This portfolio manager was in a shocking position because he was one of the best performers of the group while keeping the worst percent of outperforming stocks.

When asked why was such a discrepancy between his excellent results and his bad average of outperformers, he answered with a beautiful lesson in probability: The frequency of correctness does not matter; it is the magnitude of correctness that matters. 

Transposed to the trading profession, The frequency of the winners does not matter. What matters is the reward-to-risk ratio of the winners.

Expected-Value A bull Versus Bear Case.

Since a combination of both parameters will produce our results, how should we evaluate a trade situation?

Mauboussin recalls an anecdote taken from Nassim Taleb’s Fooled by Randomness, where Nassim was asked about his views of the markets. He said there was a 70% chance the market had a slight upward movement in the coming week. Someone noted that he was short on a significant position in S&P futures. That was the opposite of what he was telling was his view of the market. So, Taleb explained his position in the expected-value form:

Market events Probability Magnitude Expected Value
Market moves up 70% 1% 0.700%
Market moves down 30% -10% -3.000%
Total 100% -2.300%

  As we see, the most probable outcome is the market goes up, but the expected value of a long bet is negative, the reason being, their magnitude is asymmetric. 

Now, consider the change in perception about the market if we start trading using this kind of decision methodology. On the one hand, we would start looking at both sides of the market. The trader will use a more objective methodology, taking out most of the personal biases from the trading decision. On the other hand, trading will be more focused on the size of the reward than on the frequency of small ego satisfactions.

The use of a system based on the expected value of a move will have another useful side-effect. The system will be much less dependent on the frequency of success and more focused on the potential rewards for its risk.

We Assign to much value to the frequency of success

Consider the following equity graph:

 

Fig 1 – Game with 90% winners where the player pays 10 dollars on losers and gains 1 dollar on gainers

This is a simulation of a game with 90% winners but with a reward-to-risk ratio of 0.1. Which means a loss wipes the value of ten previous winners.

Then, consider the next equity graph:

Fig 1 – Game with 10% winners where the player pays 1 dollar on losers and gains 10 dollars on gainers

A couple of interesting conclusions from the above graphs. One is that being right is unimportant, and two, that we don’t need to predict to be profitable. What we need is a proper method to assess the odds, and most importantly, define the reward-to-risk situation of the trade, utilizing the Expected Value concept,

By focusing on rewards instead of frequency of gainers, our strategy is protected against a momentary drop in the percent of winners.

The profitability rule

P  > 1 / (1+ R)  [1]

The equation above that tells the minimum percent winners needed for a strategy to be profitable if its average reward-to-risk ratio is R.

Of course, using [1], we could solve the problem of the minimum reward-to-risk ratio R required for a system with percent winners P.

R > (1-P)/P    [2]

We can apply one of these formulas to a spreadsheet and get the following table, which shows the break-even points for reward-to-risk scenarios against the percent winners.

We can see that a high reward-to-risk factor is a terrific way to protect us against a losing streak. The higher the R, the better. Let’s suppose that R = 5xr where r is the risk. Under this scenario, we can be wrong four times for every winner and still be profitable.

Final words

It is tough to keep profitable a low reward-to-risk strategy because it is unlikely to maintain high rates of success over a long period.

If we can create strategies focused on reward-to-risk ratios beyond 2.5, forecasting is not an issue, as it only needs to be right more than 28.6% of the time.

We can build trading systems with Reward ratios as our main parameter, while the rest of them could just be considered improvements.

It is much more sound to build an analysis methodology that weighs both sides of the trade using the Expected value formula.

The real focus of a trader is to search and find low-risk opportunities, with low cost and high reward (showing positive Expected value).

 

Appendix: The Jupyter Notebook of the Game Simulator

%pylab inline
Populating the interactive namespace from numpy and matplotlib
%load_ext Cython
from scipy import stats
import warnings
warnings.filterwarnings("ignore")
The Cython extension is already loaded. To reload it, use:
  %reload_ext Cython
from scipy import stats, integrate
import matplotlib.pyplot as plt
import seaborn as sns
sns.set(color_codes=True)
import numpy as np
%%cython
import numpy as np
from matplotlib import pyplot as plt

# the computation of the account history. We use cython for faster results
# in the case of thousands of histories it matters.
# win: the amount gained per successful result , 
# Loss: the amount lost on failed results
# a game with reward to risk of 2 would result in win = 2, loss=1.
def pathplay(int nn, double win, double loss,double capital=100, double p=0.5):
    cdef double temp = capital
    a = np.random.binomial(1, p, nn)
    cdef int i=0
    rut=[]
    for n in a:
        if temp > capital/4: # definition of ruin as losing 75% of the initial capital.
            if n:
                temp = temp+win
            else:
                temp = temp-loss        
        rut.append(temp)
    return rut
# The main algorithm. 
arr= []
numpaths=1 # Nr of histories
mynn= 1000 # Number of trades/bets
capital = 1000 # Initial capital

# Creating the game path or paths in the case of several histories
for n in range(0,numpaths):
    pat =  pathplay(mynn, win= 1,loss =11, capital= cap, p = 90/100)
    arr.append(pat)

#Code to print the chart
with plt.style.context('seaborn-whitegrid'):
        fig, ax = plt.subplots(1, 1, figsize=(18, 10))
        plt.grid(b = True, which='major', color='0.6', linestyle='-')
        plt.xticks( color='k', size=30)
        plt.yticks( color='k', size=30)
        plt.ylabel('Account Balance ', fontsize=30)
        plt.xlabel('Trades', fontsize=30)
        line, = ax.plot([], [], lw=2)
        for pat in arr:
            plt.plot(range(0,mynn),pat)
        plt.show()

References:

More than you Know, Michael.J. Mauboussin

Fooled by randomness, Nassim. N. Taleb

 

 

Categories
Forex Market

What Is Pip & Why Should You Know About It?

What is a pip?
Essentially, a pip represents the price interest point. It is known to be the smallest numerical price move in the forex market. As you know that

What is a pip?
Essentially, a pip represents the price interest point. It is known to be the smallest numerical price move in the forex market. As you know that

What is a pip?

Essentially, a pip represents the price interest point. It is known to be the smallest numerical price move in the forex market. As you know that most currencies are priced to 4 decimal places, obviously, any change in price would start from the last decimal point. For example, in the price quote, $1.0002, ‘2’ indicates the pip value. A pipette means the 5th decimal place, while pip is the 4th decimal place.

For most pairs (except JPY), it is equivalent to 0.01% or 1/100th of one percent. In the forex market, this is referred to as Basis Point (BPS). One BPS is equal to 0.01% and denotes the percentage change in the exchange rate.

Calculation of move

Now that you know what pip means, let us see how it changes the profit and loss in your trading account. Large positions will have greater monetary consequences in your balance. The formula for calculating the value of the position is:

Position size x 0.0001 = Monetary value of pip

Let us use the above formula and apply it in some real pairs. If you open a position of 1000 units, the pip value can be calculated as 1000 (units) x 0.0001 (one pip) = $0.1 per pip.

When you open buy positions and market reacts in your favor, for every pip movement, you will earn $0.1, and the same is the case for a sell position. If the market moves against you after you buy or sell, $0.1 will be lost per pip movement as the trend continues in the opposite direction. Increasing or decreasing the number of positions will have the exact effect on the pip value.

Different currencies and their pip value

Pip value varies per currency as they are dependent on how it is traded. It also depends on the trading platform and the price feed. It is important to know that there are brokers who show four digits as pip, and some show five. One of the most important points you need to know is the average daily trading range, in order to gauge volatility in the market.

Average daily pip movement of major currency pairs

Conclusion

To conclude, pips are the smallest increment by which a currency pair can change in value and represents the fourth decimal of a currency pair other than the Japanese yen. In the case of Japanese yen, the pip is located at the second decimal place. Proper knowledge of pips will help you determine your stop loss size, as it is a major part of any strategy. One should never underestimate the simplicity of pip. Now that you have learned what a pip means, you can proceed to more trading concepts. Cheers!

Categories
Forex Market

Trading Energy Commodities – Crude Oil, Coal & Natural Gas

Introduction
Energy belongs to that category of commodities, which has the most significant impact on our daily lives. Energy prices affect the cost of almost everything that we consume on

Introduction
Energy belongs to that category of commodities, which has the most significant impact on our daily lives. Energy prices affect the cost of almost everything that we consume on

Introduction

Energy belongs to that category of commodities, which has the most significant impact on our daily lives. Energy prices affect the cost of almost everything that we consume on a daily basis, including the clothes we wear, the fuel we put in our cars, and the electronic gadgets. They, in turn, determine the increase or decrease in the prices of homes, hospitals, schools, etc. We cannot imagine ourselves in a world without energy.

The unit that is used to define the quantities of energy is the British thermal unit (Btu), which measures the heat content of fuels. According to the Energy Information Agency (EIA), every year, worldwide energy consumption exceeds 575 quadrillions Btu and is expected to reach 736 quadrillions by 2040.

Major energy commodities

Highly traded energy commodities are from non-renewable energy sources, except for ethanol and electricity generation. These commodities are very liquid when it comes to trading. Traders can also invest in these commodities through ETFs and CFDs.

Crude oil

Crude oil is one of the most actively traded commodities in the world. The price of crude oil affects many other commodities, including natural gas and gasoline. Crude oil comes in different grades. Light Crude oil is traded on the New York Mercantile Exchange (NYMEX). This type of crude oil is popular because it is the easiest to distill into other products. The next grade of oil is Brent Crude oil, which is primarily traded in London and is seeing the increasing interest. The last grade of oil is the West Texas Intermediate (WTI) oil from U.S. wells. The product is light and sweet and is ideal for making gasoline. The reports for crude oil are found in the U.S. Energy Information Administration (EIA) reports. This report is released every Wednesday around 10:30 PM ET. Traders take investment decisions based on the data of this report.

Coal

Coal is a fossil fuel that is formed from dead plant matter trapped between rock deposits. Coal is used as an energy source for hundreds of years. This mineral generates 41% of the global supply of electricity and plays a crucial role in other industries. The top 5 coal-producing countries are China, the USA, India, Australia, and New Zealand.

Natural gas

Natural gas is formed either by methane-releasing microorganisms in swamps or by pressurizing organic material deep underground. Three major reserves for natural gas are Canada, USA, and Russia. This commodity has many applications, from electricity generation to fertilizers. Natural gas futures and ETFs are available for traders and investors. The price of natural gas depends on the demand and supply of the commodity itself.

Energy commodities can also be traded through Forex Brokers these days. Many of the credible and regulated and unregulated Foreign exchange brokers allow their customers to trade all the major energy commodities like Crude Oil, Coal, and Natural Gas.

Factors affecting the prices of energy commodities

  • Market growth
  • Energy efficiency
  • Population growth
  • Electricity penetration
  • Industrialization in developing economies

Conclusion

Investors who want to invest in the energy sector should track the indices of that sector. These indices measure the production and sale of energy. One can also monitor the performance of energy company shares prices. Energy company’s revenue depends on the price of the commodity they are selling. Other factors include production costs, competition, and interest rates. That’s about Energy commodity. Cheers!

Categories
Forex Assets

An Overview of the Commodity Markets

Introduction
Trading that deals with raw materials, either manufactured or available as natural resources, are known as commodity trading. Investors, today can access around 50 major commodity markets. These are

Introduction
Trading that deals with raw materials, either manufactured or available as natural resources, are known as commodity trading. Investors, today can access around 50 major commodity markets. These are

Introduction

Trading that deals with raw materials, either manufactured or available as natural resources, are known as commodity trading. Investors, today can access around 50 major commodity markets. These are further divided into soft commodities and hard commodities. Hard commodities are natural resources that are mined or extracted, such as gold, silver, and oil. Soft commodities are agricultural products or livestock such as corn, coffee, sugar, and wheat.

Traders can invest in commodities in multiple ways. The most popular method of investing in commodities is by buying a futures contract. You also can purchase commodities through ETFs. Some of the U.S. commodity exchanges are the Chicago Mercantile Exchange, Chicago Board of trade, New York Board of Trade and New York Mercantile Exchange.

Different categories of commodities

Agricultural commodity trading

The commodities that fall under this category are sugar, coffee, cocoa, cotton, corn, and wheat. Many assume that agricultural markets are not thickly traded, but that’s a myth. In fact, coffee is the second largest commodity in the world, after oil.

The factors which impact the price of agricultural commodities are supply/demand, weather, trade agreements with other nations, new technology, taxation, etc. There are regulatory bodies that decide how a particular commodity should be produced and sold.

Energy commodity trading

This is an extremely popular category of commodities that includes Brent crude oil, WTI crude oil, gasoline, and others. The reason why these commodities are important is that they are an integral part of numerous industries. They have the power to move an entire economy. For example, an increase in oil prices will affect aviation companies, paint industries, tire companies and many more.

Countries like Russia and Saudi Arabia heavily depend on oil for revenues. Factors such as supply and demand play a major role in determining oil prices. Some other factors (which are specific to oil) include OPEC (Organization of the Petroleum Exporting Countries) meeting outcome, political statements, International agreements, etc.

Metal commodity trading

This category includes precious metals like Gold, Silver, Platinum, and Palladium. Earlier trading in precious metals was only possible by rich investors, but now with the introduction of CFD trading, traders can easily invest in metals along with wide leverage options. Supply and demand once again affect the prices of gold and other metals. Other factors include economic changes in China and India (as they are the world’s largest consumers), taxation, and Federal reserves’ interest changes.

Commodities on Forex Brokers 

Despite the fact that Forex is primarily a market for trading a variety of currencies, most Forex brokers offer a wide range of other various trading assets to their customers. By doing this, these brokers are helping their customers in diversifying their investments.

Currency trading brokers allow trading precious metals such as gold, silver, and platinum. Traders can also invest in energy commodities that include crude oil and natural gas. Forex brokers that provide commodity derivatives and CFDs are getting more and more popular and in-demand than the brokers who deal with only currencies and nothing beyond.

Guidelines to Commodity Trading

Novice traders should look at broad trends while investing and trading individual commodities. They could look at levels of crops being produced, metals being mined, and the oil extracted. Because these factors can give them clues about the direction of the market. Similar to this, inventory levels can also be a great tool for analyzing commodity markets. Continuous drawdown in inventory levels can lead to higher prices, while inventory buildup can lead to lower prices.

Technical analysis is another widely used method to trade commodities. This type of analysis uses historical prices and trends to predict the future. True technical traders do not pay any attention to fundamental factors but just price-action. But, our recommendation is to look at both fundamental factors and technical analysis in order to get the best trading results while dealing with commodities.

We hope you had a good read. If you have any questions, let us know in the comments below. Cheers!