What is a commodity? How to start trading commodities correctly

Why Are People Interested in Trading Commodities?

Over the past year, many investors have turned to commodity stocks and commodities as alternative income sources. This is because commodities are not just traditional investments but a smart way to hedge against inflation and diversify investment portfolios.

What Exactly Are Commodities (Commodity)?

Commodities refer to raw materials or natural resources in their unprocessed state, used as inputs for manufacturing or direct consumption. Examples include copper, crude oil, wheat, coffee beans, gold, and others used in daily life or production processes.

These goods are divided into two main groups: Hard Commodities (Hard Commodities), obtained through mining and extraction from nature, and Soft Commodities (Soft Commodities), produced through farming and livestock.

Which Types of Commodity Stocks Are Popular for Trading?

Commodities can be categorized based on their source as follows:

Agricultural Sector - Sugar, cotton, coffee beans, wheat
Livestock and Meat Sector - Pork, beef, dairy products
Energy Sector - Brent Crude Oil (UKOIL), WTI Oil (USOIL), Natural Gas (NATGAS)
Metals - Gold (XAUUSD), Copper (COPPER), Platinum (XPTUSD), and Palladium (XPDUSD)

Thailand is a major producer of coffee, sugar, and soybeans, presenting good opportunities for Thai investors to follow market trends.

What Are the Main Factors That Cause Commodity Prices to Fluctuate?

Commodity prices do not move randomly; several key factors influence them:

Demand Factors - Rising income levels, changing consumption behaviors, and varying demands across countries

Supply Factors - Production, resources, labor, land, water sources, and production technology

Uncertainty Factors - Weather conditions, natural disasters, and climate change

Speculative Investment - Trading in futures markets can create volatile price cycles

Is It True That Trading Commodities Only Has Advantages?

Clear Advantages

✓ Inflation Hedge - Gold, silver, and oil often appreciate when living costs rise

✓ Diversification - Commodities have low correlation with stocks and bonds, reducing portfolio volatility

✓ Liquidity - Easy to buy and sell, with price movements often opposite to stock markets

✓ High Profit Potential - Especially during economic volatility

✓ Long-term Growth - Increasing demand and decreasing resources

Disadvantages to Be Aware Of

✗ High Volatility - Commodities are twice as volatile as stocks and four times more than bonds; crude oil and gold are particularly volatile

✗ High Leverage Risks - Using minimal margin can lead to quick losses

✗ Opposite Movement to Stocks - Not always suitable for all market conditions

✗ Environmental Impact - Mining and extraction industries can harm the environment

How to Trade Commodities for Beginners

Since you cannot store crude oil or natural gas at home, investors mainly have four options:

1. Commodity ETFs

Ideal for beginners with limited budgets, as you can buy one unit instead of large, expensive gold bars. High liquidity and no worries about storage or theft.

2. Futures (Futures) in Commodities

Forward contracts to buy or sell at a predetermined price today for delivery in the future, applicable to gold, oil, and others. The advantage is that you only need to invest with margin (Margin). Suitable for traders with limited capital but high risk.

3. Commodity Company Stocks

Buy shares of companies involved in commodity production or mining, such as BHP Group, Rio Tinto, Vale SA, Wheaton Precious Metals. Benefits include good risk diversification and inflation protection.

4. Commodity CFDs

The most flexible method, allowing trading in both rising and falling markets without owning the actual goods. Positions can be held overnight or for extended periods by paying Swap interest, which is lower than rolling over futures contracts.

Special Advantages of CFDs

• Profit in both directions - up or down
• Use leverage to increase opportunities (but beware of risks)
• Market open 24/5 - trade anywhere, anytime
• Diverse investment options - commodities, stocks, indices, and more

Hidden Costs - Don’t Forget!

In CFD trading, your profit = closing price - opening price - costs. Costs include three types:

1. Spread (Spread) - The difference between buy and sell prices, e.g., gold 1949.02 - 1949.47 = 0.45 spread

2. Swap (Swap) - Overnight position holding fee (charged at 23:59)

3. Commission (Commission) - Trading opening/closing fees (some programs may not have)

Trading Hours for Commodities - What You Need to Know

Commodity markets are not open 24 hours; trading depends on the region. Example schedule (in Thailand time):

(Note: Monday-Friday, Saturday-Sunday closed)

Summary: Is Commodity Investment Worth It?

Commodities are a good investment, but choosing the right one is crucial. Selecting a broker with suitable features—such as trading multiple markets, fast deposits/withdrawals, and low commissions—is very important for success.

Most importantly: Never invest solely in commodities. Adjust your portfolio according to your risk tolerance, study details, understand risks, and be cautious of high volatility impacts.

Commodity stocks can be a good choice, but you need a clear investment plan. Remember: Investing involves risks and may not be suitable for everyone. 📌