Commodity traders speculate on the rise and fall of various natural resources, such as oil and gold. Commodities are broadly divided into two categories, hard and soft. Hard commodities are those that we extract from the earth like precious metals and oil. Soft commodities are generally the products of agriculture, such as wheat, coffee and corn. The reason why commodity markets have such a far reaching influence, is that every commodity finds its way into a large number of other products. For this reason commodity prices have a far wider influence than just the raw material itself. This is perhaps most pronounced in the case of crude oil, which is refined into a wide variety of other products, but is also very important for fueling almost all production and distribution in the global economy.
This is entirely dependant on the sizes of their investments as well as how successful they are at anticipating future trends. Like any other market, though, the commodities market is not a get rich quick scheme. Trading requires hard work, patience and dedication. The traders of this particular asset class tend to take a longer term view as commodity prices are a leading indicator of the health of broader parts of the economy. For this reason, it is also important to correctly predict trends before they are fully established as commodity prices have far reaching effects on the value of other assets.
Much like any other market that features inefficiencies and fluctuations in price, there is indeed money to be made in commodity markets. This asset class is the lifeblood of the global economy as in many ways it is essential to our modern way of life. To be a good commodities trader you must not only know the fundamentals of how markets work, but also stay informed about what is happening in the world geopolitically as it is these kinds of changes that are felt most in commodity markets.
Crude oil is by far the most traded global resource. Modern civilization depends on crude oil more than any other commodity for every aspect of daily life. Every single supply chain relies on a consistent supply of crude oil so in many ways the rest of the global economy is largely dependant on this commodity.
Not all crude oils are made equal. For instance, the sulphur, wax and metal content of a crude oil can vary greatly, making it harder and most costly to refine certain oils into gasoline. Commodity markets require that the resources they list are standardized so that units can be interchangeable and of equal quality. One region’s crude oil can be measured for quality and compared to that of a different region. For this reason there are two main oil standards that have emerged. The first is West Texas Intermediate crude oil. Also known as “light sweet crude”, it is extracted from the North American permian basin, is relatively low in sulphur content (and thus called “light sweet”). The second most traded standard is Brent Crude, which is a blend of crude oils originating from around 15 different North Sea oil fields. Brent crude is also low in sulphur content, and is of a slightly higher quality than that of WTI. Its location makes it harder to mine and it is scarcer than WTI, causing it to trade at a premium compared to WTI.