The benefits of trading in commodities are well documented. In a world where many people’s income depends on it, traders and investors look for ways to secure their future by investing money now. It often means putting some into volatile assets like those from countries with large reserves deposits like Canada or Australia, who have been known commodity producers throughout history!
The key here, though, is that these forex pairs offer additional returns and provide diversification because each country has its unique set prices associated with them depending on how much they produce at home. This is opposed to say only owning stocks all over the globe without any geographical considerations whatsoever would leave one exposed to significant risks if something goes wrong anywhere else.
One of the main reasons commodities are so profitable is because there is a relatively low barrier to entry when it comes to trading commodities.
What is the best commodity?
There is no “best” commodity to trade in forex, but some have better profit margins than others while being relatively easy to get into and manage.
The best commodity to trade depends on what markets you have access to, your level of experience and how much risk you’re willing to take with any one position.
One example of a popular commodity that’s near impossible for small traders or new traders alike is oil.
An investor who decides to trade crude oil contracts rather than something like gold will see returns that reflect the price movements in much less volatile markets when the contract’s value is not affected by politics or geopolitical issues.
The fact that it’s possible to be leveraged up to 25:1 for each standard lot traded makes crude oil one of the best commodities for new traders who want something with a little more excitement than, say, corn futures.
If you were to use $2,000 in capital to purchase one standard lot (worth $100), then you could be trading 100 standard lots and leveraging your money 25:1.
If you trade one lot, there is a $2,000 maintenance margin requirement, which means that this position should remain open until the market closes, provided there’s no trader error like improper order placement.
That initial $2,000 does not mean that it would take 2,000 or 200 times as much capital (monetary value) to close the position; rather, it’s simply an example of how much money is required to maintain one contract through closing time.
Another reason why oil futures are good for beginners and experienced traders alike is because they provide a real-world point of reference and allow you to attach true economic metrics (i.e., dollars per barrel)to each trade.
Much like stocks and bonds, oil futures are traded in lots on most major exchanges, including the CME Group. They’re also traded during three different sessions throughout each day, with each session lasting roughly two hours.
The more active European session usually lasts from 6 am EST/11 am GMT to 11 am EST/4 pm GMT, while the more active North American session is from 2 pm EST/7 pm GMT to 6:30 pm EST/11:30 pm GMT.
The Asian session usually lasts for two hours between midnight and 2 am EST/7 am GMT, and there’s also a pre-market electronic session that runs for about an hour to 1.5 hours between 5 am EST/10 am GMT/6:30 am EST/11:30 pm GMT.
When to trade oil?
The early morning electronic session is the best time to trade oil futures because it offers some of the cheapest liquidity in all three major sessions, so if price gaps are lower or higher during this time, you’ll likely find some of the best opportunities to take advantage of these gaps in order to make a profit.
If you want to get the best returns from your oil futures trades, keep in mind that there are three essential things to look at when trying to capitalize on a price gap:
Knowing how much of a gap exists between two or more different benchmark prices can help you determine whether or not it’s safe and profitable to open a position.
However, you might not always have the resources, time, or capital to determine a true gap. If you’re trading oil futures and that’s the case, then it might be best to try and focus on trades that last for at least two hours.
Oil futures can be traded throughout any of the major sessions, but there are definitely some periods during which it’s safer to trade than others.
If you’re not able to determine what a true gap is, then it’s best to focus on trades that last at least two hours during the more active sessions.
If price gaps are lower or higher and there is no liquidity in the market, then you might want to wait for a couple of hours before taking a position because these gaps are bound to be filled at some point in the future.