For a long time, investors have been paying attention to commodity trading. Commodities are a classic asset type that has been utilised for investing reasons by people for ages. In fact, this trading instrument allows you to acquire market momentum because investors frequently use it to hedge against other asset classes such as equities.
Agricultural products and natural resources that are exchanged in big quantities are considered commodities. This is because commodities have significant economic worth, which is determined by supply and demand. There are several ways to trade commodities in South Africa through an authorised broker like PrimeFin.
In this post, we'll go over the ins and outs of commodity trading in South Africa, as well as how the country's commodity market operates. Apart from that, we'll go over the primary elements that influence commodity prices and where you can trade commodities CFDs in South Africa.
What are commodities?
Commodities are goods that may be exchanged in huge numbers in a variety of ways all over the world. These are the materials that humans and other species on the earth can benefit from. Commodity markets are essential in any country's economy since they include raw materials that are used to make energy, food, and clothes. As a result, commodity markets are responsible for basic human necessities.
Commodities are divided into two categories: soft commodities and hard commodities. Agricultural items (wheat, sugar, soy, chocolate, etc.) and cattle are examples of soft commodities (beef, meat, eggs, milk, wool, etc.). On the other hand, hard commodities are things that can be mined or extracted, such as precious metals such as silver and gold, natural resources such as coal, oil, natural gas, and so on.
Significance of commodity trading?
The client's knowledge and interest in a variety of commodities influence the process of selecting a commodity. It also relies on how much margin money the client has available, which shows how much they intend to invest in the commodity market.
The time horizon over which the customer wishes to invest in commodities also influences the commodity chosen. For example, the duration of the project can be short, medium, or long. In addition, the objective of the investment, such as hedging, speculation, or diversification, influences the commodities picked.
How does the commodity market Work?
The commodity market is a global marketplace in which a variety of raw resources are traded on a regular basis. Commodity trading is a feasible financial opportunity for those looking to participate in the commodity markets. It's important to remember that a variety of factors influences commodity prices.
Commodities are mass-produced and have consistent quality and quantity. Regardless of the producer, the price remains the same. Commodities can be purchased on a variety of exchanges. However, the Johannesburg Stock Exchange is the most critical commodity exchange in South Africa (JSE). The Chicago Mercantile Exchange (CME), London Metal Exchange (LME), Multi Commodity Exchange (MCX), and others are all prominent commodity exchanges.
Just like with stock futures, you don't have to pay the full amount. Instead, you need to pay a fraction of the cost of the commodity, known as the initial margin, to open a position or trade in the commodities futures market.
Commodity futures are exchange-traded contracts that allow you to buy or sell a certain quantity of a commodity at a set price at a future date. It's similar to Index futures and Stock futures; however, commodities are used as the underlying instead of equities and indexes.
How can I trade commodities in South Africa?
Agricultural items, chemicals, ore, coal, oil and gas, and precious metals can all be traded with the help of PrimeFin's specialised experts. Our multi-country network of industry and market experts provides us with unrivaled insight into local markets and cultures. In addition, our laboratories offer testing, certification, and verification services all around the world.
There are several ways to gain entry into the Commodities Market. You must, however, be able to make your own decisions if you wish to be self-directed. Whether you employ an automated system that places your trades for you or has your account managed personally by a money manager, there are some crucial steps to follow.
Once you've decided who you want to speak with, you'll need to consider how much risk money you want to put into this investment, as losing it shouldn't negatively affect your lifestyle. Remember that regardless of who is trading the funds, this is a highly leveraged, speculative investment, so deciding the level of service to choose should be your next step.
We will honestly and professionally analyze the risks in order to give you the information you need to make strategic decisions.
Factors affecting commodity prices?
In the long run, core fundamentals such as supply and demand have a big impact. Income and population, production costs and technology, as well as government and producer actions, are all aspects to consider. Furthermore, commodity prices are influenced in the short term by a variety of factors such as weather, interest rates, and speculation.
All commodities must be stored before being delivered since they have a physical form. Inventory expenses and storage have less of an impact on market prices because this isn't the case with financial items.
There are two sorts of costs associated with maintaining commodities. The first is the monetary cost, and the second is the cost of physical storage, both of which must be factored into future pricing calculations.
Commodities are a separate asset class from stocks and bonds. Thanks to financial innovation, anyone can now invest in a single commodity or a basket of commodities. In addition, in order to diversify their profits, pension funds and other investment firms are increasingly investing in commodities.
Longer-term technological developments may result in increased yields, lowering the marginal manufacturing cost. However, as countries become wealthier, commodity demand often grows at a slower rate to keep up with the rise in income. All of these factors have an impact on commodity prices in some way, but when global commodity stockpiles are low, their importance is exacerbated.
As countries grow, industrialise, and urbanise, they use more goods, particularly industrial metals like steel and energy. Extreme weather conditions, such as too cold, hot, dry, or wet, will undoubtedly reduce agricultural yields until the weather improves.
CFDs Commodity Trading
CFD instruments are another popular technique to trade commodities; however, this method is only appropriate for experienced speculators who want to speculate on commodity price swings. It isn't meant to be used for risk management.
In South Africa, CFD trading is a regulated financial product. As a result, if you wish to trade commodities using CFDs, you'll need to find a CFD broker that is licensed and regulated by the Financial Services and Markets Authority (FSCA) (Financial Sector Conduct Authority).
You do not own any tangible goods if you use this medium. A contract between two parties, primarily a broker and a speculator, to settle a price difference at a particular time is known as a CFD. Furthermore, there are a variety of advanced approaches for trading futures options, such as buying and selling options at different strike prices, and so on.
Trading futures options is a different technique to trade futures commodities. Options trading can be done on the long or short side of a market. Short-term aims are met with Put options, whereas long-term goals are met with Call options.
Because the amount you may lose is not limited to the cost of the option, selling options pose a more significant risk. However, buying options have the ability to mitigate certain risks to the cost of the option and any commissions paid.
Where to Trade commodities CFDs in South Africa?
Commodities can be traded using the PrimeFin webtrader on a desktop, laptop, or mobile device. PrimeFin provides its clients with one-click commodity trading operations on a world-class trading platform in South Africa.
Several cities have been recognised as delivery centres for various commodities by the exchange. For example, in South Africa, the PrimeFin brokerage firm offers the most extraordinary environment for trading commodity CFDs. If a buyer of commodity futures requests physical delivery, he will be matched with a seller and required to pick up the specified quantity of goods from a designated warehouse.
Suppose a seller of commodities futures chooses to offer physical stock rather than settle positions in cash. In that case, he must deliver the stocks to the designated warehouses in compliance with the contract quality criteria.
Investors in South Africa have long recognised commodity trading. Invest allows you to invest in a variety of commodities using a variety of trading tools. It is critical to be aware of the numerous factors that influence commodity pricing. Before you start trading, brush up on your knowledge of commodity trading and the hazards that come with it.
PrimeFin, unlike other brokers, makes it simple to use your trading account since we offer a user-friendly interface and a great trading environment. Trading with PrimeFin also gives you access to a variety of features. So, let's talk about what you get when you sign up with us.
Exceptional client support: PrimeFin provides multilingual customer service through live chat, email, and phone. Please use our contact form if you have any questions about the account opening procedure, account customization, or anything else.
Great educational and research support: PrimeFin offers a variety of instructional resources to help you along your trading path. PrimeFin provides a variety of tools, including publications, articles, videos, webinars, and more. In addition, you can use the economic calendar and news notifications to help you with your research.
MetaTrader 4 (MT4): The MetaTrader 4 trading platform has won numerous awards and is widely utilised by traders all around the world. With the MT4 trading software, you may have access to a variety of global markets with only one click.
Wide range of trading markets: Along with commodity trading, PrimeFin allows you to trade FX currency pairs, stocks, indices, and cryptocurrencies.
Leverage: In the financial world, leverage is a double-edged sword, so use it with caution. Clients of PrimeFin have access to adjustable leverage of up to 1:100.
Is commodity trading legal in South Africa?
Commodity trading is, of course, completely legal in South Africa. Make sure you're buying and selling commodities through a reputable broker. Check to see if the broker is regulated, as there are a lot of unscrupulous brokers out there these days. Because we are a highly regulated broker serving South Africa, you can choose PrimeFin for commodity trading.
How do I start trading commodities online?
You can begin trading commodities online by opening a trading account with a reputable broker. You may now open an PrimeFin trading account in just three steps. To begin, use the PrimeFin free sample account to familiarise yourself with the commodity markets and trading interface. After that, you may easily trade with your PrimeFin live account in a user-friendly trading environment after learning about market movements and pricing trends.
What are commodity futures?
Commodity futures are contracts in which investors are obligated to buy or sell the underlying commodity at a fixed price and date. Commodity futures are typically used by investors to hedge their commodity positions. You can also do so through your PrimeFin trading account.
What commodities are traded in South Africa?
You can trade a variety of commodities in South Africa, including soft and hard commodities. You can invest in soy, corn, wheat, beef, and other significant livestock products, for example. Aside from this, you can invest in precious metals commodity ETFs such as silver, gold, and platinum. Natural gas, oil, and coal are also excellent investments for South Africans.