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The modern commodity market takes on a lot of challenges that are also the significant fundamental factors that affect commodity prices. And if you’re thinking of investing in the commodity markets, you should be familiar with the factors that directly and indirectly affect commodity price movements.
In this article, we will tackle the most Market News-Economic Calendar important factors that you should consider as a commodity trader to make inroads in the commodity markets. Read on and learn more!
Risk and Return
High profit is always tailed by high risks. Based on traders and investor appetite for the risk and his chances of good returns, he can prepare his portfolio. Commodity buying and selling is not like trading stocks at the spot prices.
It is more like a HQBroker WebTrader Platform futures trading transaction. The improbability and the risk involved are parcel and part of the commodity market. Even if the commodity futures trading of the commodity market is similar as the equity market futures trading, the difference is that supply and demand estimates in the commodity market may not be as hard.
Trading, Clearing, and Settlement
Trading involves two or more parties negotiate to exchange goods with cash at a particular date and price. There may be 2 types of investors or traders in the commodity marketplace. One is delivery-based while the other is non-delivery based.
Exchanges are needed to clear the deal and make sure that the parties involved in the transaction are capable of fulfilling the ‘terms and conditions’ set out in the trade. The clearing serves as some sort of assurance that both parties can push through the trade.
Demand and Supply
Demand and supply are the most basic factors that affect the movement of any commodity product prices. The law of the demand and supply applies in the commodity market as in the equity market.
On the other hand, the demand and supply of all types of commodities differ during different time periods and largely depend upon its seasons, domestic, and global conditions, and different other major factors changing its characteristics.
Demand Curve
This refers to the refined form of the demand analysis. The demand structure in layman’s term is a graphic exhibition of demand levels over a time period. Price is represented on the y-axis while the demand is on the x-axis.
The graph is a line representing demand at specific prices over a time period. It offers a clear visual or description of the demand situation over a period of time at various price levels.
Global and Domestic Economy
Economic scenario considerably affects the prices of commodities. Demand and supply of any commodity have a direct relationship with the financial condition in the any state. Depending on the behavior of the commodity, global and domestic economic situations affect the commodity prices.
Inflation
Commodities are measured as hedge against inflation because not like stocks, commodity prices go in the direction of the inflation. With the rise inflation, the prices of major commodity items also rise.
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