CFD trading offers a wide range of tools for its users, including commodities. The “contract for difference” type of trading is a well-known instrument to gain fortune on the market, which is currently on-demand. CFD trading commodities is not new to brokers. Asian investors started to use this tool hundreds of years ago. Nowadays, this type of trading is popular again.
CFD Commodities Trading Explained
CFD stands for Contract for Difference. In short, this is an agreement between a seller and a buyer for the difference one of the parties receives for the current value of the asset and its further appearance on the market. CFD is widely used in stock exchange markets around the world. Commodities are one of the main instruments of this trading. They are usually traded in 2 forms:
- Cash commodities that have the settled date in the nearby future;
- Forward commodities that do not usually have a specific close date and offer a wider spread.
The most popular options of commodities for trade are:
- Energy resources – natural gas and oil;
- Agriculture – wheat, sugar, cocoa, and coffee;
- Metals – copper, gold, and silver.
Increased Value of Agricultural Commodities
Apparently, we can expect the rise of wheat and other agricultural commodities value on the market in 2021. The demand on them never stops, as well as the rise of supplies. These commodities are highly reliant on the consumer. The main worldwide buyer of agricultural products is China. This country is also responsible for lifting prices, being the biggest owner of commodities. The pandemic has messed with the usual trade flows, bringing new buyers of agricultural products. Countries around the world prefer to make their own supplies.
Another major factor in this market is the easiness of supply. The natural conditions were in favor of farmers around the world. Yet, the La Nina threat is still there, bringing new risks of flooding and rainfalls that may damage the future crops.
The last but not least factor is the state of the US dollar. Its weakness has partly reduced the commodities’ cost in the international currencies. However, many U.S. financial experts expect the quick restoration of the national currency, which would raise the export/import prices.
Commodities Market Forecasts of 2021
The wheat market jumped up last summer. Since that time, it has kept this tendency. The contracts on this commodity reached a 40 percent increase in January 2021. The prices are growing, heated by the news that Russia, the biggest supplier of wheat, changes the export tax.
The sugar numbers significantly fell in March; however, April’s prices went high and never returned. Analysts explain it by the low production of sugar in the EU and Thailand. The Brazilian supplies are expected in April. Low quantity of the product quickly increases its value.
The cotton market was down in 2020, struck by Covid-19. It rebounded several months later and reached its new highs last October. The prices went up by 60 percent. The demand for this product may bring more gains.
Possible Options for Investors
Investors usually neglect metals like copper or silver. They also overlook small agricultural commodities, mainly because they are not as valuable as oil or gold. At the same time, 2021 offers plenty of possibilities and promises a potent return of wheat and sugar, as well as platinum. Since last June, Bloomberg’s Agricultural Index has gone up by 30 percent and reached the highest level in 2 years. Wheat faced an increase of 30 percent in the last 12 months, and sugar increased by 20 percent during the last year. These commodities have both ended the year with a significant increase without breaking the row. Even cotton has raised by 17 percent and jumped up to its highest numbers in two years.