Why this might be a good time to trade commodities online
November 29, 2022 (Investorideas.com Newswire) The focus has turned to commodities in 2022, after a decade during which the world benefited from relatively-low and stable prices. The productivity drop generated by the pandemic, amplified by the conflict between Russia and Ukraine, created a major imbalance between the demand and supply of commodities.
With fewer commodities being produced globally, more people have started considering commodities trading. Since brokerages like Globe Invest Hub are offering trading services on such assets, it is now convenient for anyone to get acquainted with this interesting market. The question remains what traders should do in order to successfully navigate in this market.
A trader needs volatility to generate returns and when talking about oil prices, agricultural commodities, or precious metals, volatility has been and continues to be the norm. While at first the war prompted a sharp repricing of assets, now the markets are starting to discount the implications of weaker demand.
Economic activity is slowing globally, meaning people (and businesses) buy fewer products or services. This comes on the back of weaker fiscal and monetary stimulus, as financial authorities around the world intervened to curb demand, in order to temper inflation.
Volatility on the way up and down is expected to remain elevated into 2023 as well, also due to lower liquidity in the commodities space.
According to analysts working at Globe Invest Hub, even though most commodities eased from all-time highs, structural issues remain. In the case of the oil market, for example, it might take one or two years until demand and supply come into balance, based on projections belonging to Exxonmobil, one of the largest companies in the field.
Investments geared towards producing commodities fell for several years in a row and productivity dropped sharply in 2020 and 2021. Thus, capital expenditures should increase to fill the gap. Curbing demand is also a short-term solution that will wane next time economic activity rebounds.
Top commodities to trade
Speaking of top commodities to trade, it may be a good idea to keep an eye on oil. WTI and Brent Oil are instruments covered by the majority of brokerages out there. Low trading costs (a.k.a. spreads), fast trade execution, and the importance of oil for the global economy are just some of the reasons why this is a trending commodity. The world consumes approximately 100 million barrels of oil per day and many big trading companies are active in this market.
Moreover, the US Dollar is easing from this year's high, and that's why traders are once again turning to gold. It is still the most popular precious metal in the world and people use it to take advantage of short-term price movements, or as a hedge against the diminishing purchasing power of money.
Lastly, agricultural commodities like wheat, corn, and cotton should be on commodities traders' watchlists. During a time when inflation is elevated, people usually direct their spending toward basic needs, in particular food and utilities. Activity in this sector is set to remain uncertain, considering weather changes have an influence on price as well.
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