Since the market for commodities is the oldest of all markets and it has evidently had a huge economic impact on world countries and people across the globe and since most binary options brokers that we feature here at binary options wire, as well as others out there, include a number of commodities on their menu of tradable assets, let us take a closer look at the investment vehicle that commodities form and why it is that binary options traders could pick commodities in order to turn economic events into opportunities for profit.
The commodities that are traded in the world markets fall under four broad categories; that of energy (which includes oil and natural gas), metals (including gold, silver and copper), livestock and meat (including live and feeder cattle) and last the agricultural category (which includes wheat, coffee and sugar).
The trading of commodities options works in a similar manner as trading binary options on other forms of assets, such as indices or stocks. At the same time, it entails the correct prediction whether the price of a specific commodity will rise above or fall below its original price upon expiration. Binary options traders should place a CALL option if they believe that the commodity price will rise, or place a PUT option if they anticipate that the price will fall.
Also similarly to most other forms of trading, successfully trading commodities options requires a thorough understanding of the asset itself, while also timely placing the right trades according to one’s predictions.
At this point, it is expedient to note that although commodities markets comply with the basic economic principle that a reduction in the supply will lead to a rise in the price, no one should attempt to trade commodities before taking into account the unique characteristics of this particular assets category.
One should always be aware that there are inherent risks in trading commodities, because the supply and price of commodities is all too often affected by factors that are almost impossible to predict, prime examples of these being adverse weather conditions, man-made or natural disasters, such as an earthquake, or even epidemics, when it comes to livestock or agricultural commodities.
Therefore, and before proceeding to some other features that distinguish trading commodity options, we should suggest that unless a trader somehow possesses genuine insights that prove specific trends or events affecting the price of a commodity, it would be wise not to allocate a huge share of one’s portfolio exclusively to commodity binary options trading.
Besides the unpredictable factors already mentioned above, which are also coupled by other types of factors, such as a war or political unrest (an obvious example being the situation in the Middle East and its effects on oil supply and prices), commodities do not differ from many other assets whose prices are also affected by the overall market and economic performance, as well as from the decisions, success or failure of big firms, who are either the major suppliers or purchases of specific commodities. However, what is worthy of highlighting is the inverse relationship that strangely enough is often noticed between the actual performance of the markets and the price of commodities. The simple explanation behind this phenomenon is that when the markets are recording poor performances, many traders turn to parking their money on commodities in an attempt to seek safety, at the same time causing the prices of commodities to rise.
A closer look at a series of data concerning the prices of different commodities reveals that the prices of commodities are extremely volatile, with most commodity prices changing by more than 30% during a year on average. A binary options trader, who comprehends what this price volatility means can take advantage of the fact that binary options trading allows for placing trades with minute, hourly, daily or weekly options, and through the close monitoring of the price movements of a specific commodity, can make successful and rightly timed predictions, achieving substantial returns.
As we strongly believe that trading binary options on commodities is an extremely attractive path to be followed by all those binary options investors who are seeking to diversify their asset portfolio and being convinced that through this investment vehicle there are abundant opportunities for profits to be had, we will, in the days to come, be delving further into the issue of trading specific popular commodities such as gold and oil.
George Milios is the founder of onlineforextrading.net, the binary options and forex news portal which is dedicated to providing you with all the information you need to successfully trade.