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Commodity trading explained
Trading CFDs on commodities
When you trade commodity CFDs with Vestle, you can apply leverage. This trading tools increases your trading power while simultaneously increasing risks. Since Vestle is an authorized and regulated company, maximum leverage is dictated by local regulations and varies according to the CFD instrument you choose to trade. For commodities, maximum leverage is 10:1. This means that for every £1 you invest, you can open trades worth up to £10.
For example, if you invest £500 in oil CFDs, you can open a deal worth up to £5,000.
Why? Because £500 (investment) x 10 (leverage) = £5,000.
Now that this is sorted out, let’s talk about short and long trading.
Sell or Buy?
What happened when you believe the price of a commodity – let’s stay with the crude oil example – is going to increase? That’s right. You buy it now, hoping to sell it later, when the price (hopefully) increases. On our platform, this is called a ‘Buy’ deal, but you might here some people refer to it as a ‘long deal’ or ‘going long’.
What happened when you believe the price of crude oil will decrease? We’ll, in this case, CFD traders can still invest, by opening a ‘Sell’ deal. This is also sometimes called a ‘short deal’ or ‘going short’.
By choosing the direction of the deal – Buy or Sell – you can trade regardless if you believe the price will increase or decrease.
Opening a commodity CFD deal with Vestle
- Choose a commodity CFD (oil, gold, cocoa, etc.)
- Figure out your deal size (how much you want to invest)
- Decide the direction (Buy or Sell)
- Click ‘Deal’
Of course, opening your deal isn’t enough. You also have to monitor and close it on time, which requires quite a bit of juggling, especially when you have multiple deals opened simultaneously. For this purpose, you can use Stop Loss and Take Profit orders. They allow you to better manage risks and, with the exception of slippage, enable you to dictate when and how your deals will close.
What factors can affect the price of commodities?
The commodity market can be affected by many factors and they’re not the same for all commodities. Just think about it: Heavy rains in the world’s coffee belt can have a substantial impact on coffee price but are far less likely to affect the global price of platinum.
However, we don’t want to leave you empty handed, so here’s a shortlist of some of the major factors that could affect commodity prices:
- Weather, especially unusual one
- OPEC meetings
- Change in consumer preferences
- Level of confidence in global economy
- Trade agreements
- Development of new technologies
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