Seasonal commodity trading in the Forex market
While crude oil prices are determined by the supply of crude oil and demand for products such as gasoline and heating oil, grain experiences the most volatility before harvest. Coffee prices are affected by the weather in areas where coffee beans are produced, while natural gas is most affected by the weather in the United States.
Commodities are the driving force behind many economies around the world. Supply and demand for food and energy increase as global growth rises and declines when global GDP shrinks. Changes in global economic cycles play an important role in increasing the demand for food and energy, but during these cyclical changes, seasonal changes occur that cause fluctuations in prices and volumes.
Therefore, in this article, we will look at the nuances of trading commodities, and also describe how prices for popular assets change depending on the season.
Trading commodities on the Forex market
Everyone is familiar with the concept of stock trading, but trading in commodities can be heard much less often. Commodity trading is one way to diversify your portfolio by buying and selling products like oil and natural gas, non-ferrous and precious metals, and agricultural products such as wheat, coffee, and sugar.
Traders speculate on the future value of commodities in an effort to extract the difference from price fluctuations. Some traders also seek to hedge against inflation by trading commodities. Assets in their portfolio can rise in value as commodity prices rise.
Commodities can be divided into several main categories:
- Agricultural goods. These include food crops (cocoa, cotton, corn, coffee, and others), livestock (pigs, cattle), and industrial crops (such as palm oil and lumber).
- Energy products. These include natural gas, crude oil, gasoline, coal, uranium, and ethanol.
- Metals. This category covers non-ferrous metals (copper, iron ore, zinc, aluminum, nickel, steel, etc.) and precious metals (gold, silver, palladium, and platinum).
The total number of contracts on commodity exchanges is measured in thousands, but all of them can be divided into separate categories and each asset has its own characteristics. Even the exchanges and trading platforms themselves are divided into separate areas, which allows you to optimize the work process. For example, the Chicago Board of Trade mainly operates with grain food products. Precious metals and energy carriers are also offered for sale here. On the Tokyo Stock Exchange, you can buy precious metals, rubber, and other products for industrial production.
However, for a market participant, trading on the exchange of commodities occurs according to different rules, since most traders do not want to physically accept the goods. Therefore, the over-the-counter market offers work with financial instruments such as:
This allows you to significantly reduce transaction costs and offer more favorable conditions. At the same time, it is worth remembering that pricing when buying and selling commodities is not centralized.
Commodity prices are largely determined by numerous factors that can influence supply and demand, such as economic activity, weather, geopolitical events, and seasonality. Severe supply disruptions or problems with new sources of production can cause commodities prices to skyrocket or fall. Let’s look at how the prices of basic commodities change depending on the season.
Commodities trading for every season
The seasonal factor takes place in the pricing of many goods, such as metals, grain, sugar, etc. Seasonal fluctuations are also noted in sales of petroleum products, such as gasoline, kerosene, and ship fuel. For example, crude oil prices are determined by the supply of crude oil and demand for products such as gasoline and heating oil, grains experience the most volatility before harvest. Let’s see how seasonality affects the prices of the most common products and what is the best trade in each season.
Oil and gas in the Forex market
While crude oil prices fluctuate in a cyclical manner with increases, along with supply constraints, there are seasonal trends that help reflect changes in oil prices.
The weakest months for oil prices are spring and autumn when the weather is mild and demand for gasoline falls. Refiners typically perform maintenance during the northern hemisphere’s spring and summer months, resulting in lower average productivity.
Natural gas is also a global product, with the United States providing the most liquidity. Trade practice shows that seasonality has a serious impact on gas prices. The best time for concluding a contract on the part of the buyer is March-April. The maximum gas prices are observed in winter from December to January.
Forex gold and precious metals trading
There are two main seasonal charts for trading gold and silver. The general seasonal trend is that prices will start to rise in the first half of November and continue in a mostly bullish market trend at the end of May. A more detailed seasonal breakdown through a historical review of gold prices futures, mineral stocks, and the HUI gold index shows three different cycles during a calendar year:
- An increase in prices from November to the first of February is usually caused by increased buying during the Christmas and New Year holiday seasons and then falling to a low in March.
- Another rise from March to the end of May, or the first part of June, and then a drop in prices, often resulting in an annual low that was once at the end of July. These first two periods include a more general identification of the seasonal increase in market prices that runs from November to May.
- A less dramatic upcycle occurs in August and September, followed by a decline in prices at the end of October before prices start to rise again in November.
It is important to take into account the moment about the seasonality of gold and other metals, that they are not a guarantee of rising or falling prices. Seasonal market trends are often compared to favorable tailwinds. Analysts and traders first look at the Technical and Fundamental factors that are most likely to drive the precious metals markets; they take into account seasonal factors for only the second time compared to the more direct factors that affect the market price.
Forex grain trading in the Forex market
The seasonality of the agricultural market is as old as civilization itself and is one of the most predictable financial cycles. At the heart of this seasonality lies one unchanging fact: crops have a growing cycle that begins with planting and ends with the harvest. And with few exceptions, these crops are planted at about the same time every year and then harvested a few months later, also at about the same time every year.
Since the seedling season occurs at the same time each year, it is not surprising that market prices show repetitive patterns based on repetitive planting/harvesting cycles. For example, a study of historical prices for corn shows that the highest prices for corn are most often observed in the middle of summer, then, usually, by autumn, the price decreases.
This seasonal price trend usually coincides with the supply/demand of the crop – less supply in the spring, after supply in the fall after harvest. Knowing this seasonal trend, you can develop an investment strategy to take advantage of this pattern.
Coffee trading in the Forex market
Coffee is harvested at different times in different parts of the world, so there is always a fresh harvest, with some regions lasting longer than others, depending on location and climate. Burundi, Rwanda, Congo, Brazil, and Peru enter the market from September to December, while Ethiopia and Kenya enter the market in spring and summer.
Coffee-producing regions located on the equator – Ecuador, Brazil, Kenya, and Sumatra – harvest most of the year. The collection period is much shorter in Mexico, Panama, and Ethiopia.
More than 90% of all transactions are made on green or unroasted grain. Seasonal factors play an important role in coffee production and affect futures prices. There are no peaks in production, but there are peaks in consumption: in summer, a decrease by an average of 12%. Imports of coffee beans are reduced in the spring and summer months, and demand increases in autumn and is consistently high in winter.
In general, the price maximum occurs in June-July, mainly due to the influence of weather on the harvest in Brazil, the winter months in the Southern Hemisphere, and lower consumption during the hot months. Price low: a bottom forms during October before a sustained advance. Periods of growth in the price of coffee: August-September inclusive, mid-October-late May.
Social trading of commodities
Most novice traders wonder how you can start trading commodities seasonally without much experience or skills in analyzing macro and micro economic factors. Of course, you can always hone your skills on a demo account and be more confident in entering real trades, but there is still a risk of failed investments. In order to avoid major losses and negative experiences, both beginners and experienced traders can use Social and Copy trading.
Social trading, also often referred to as mirror trading, is a way of working on an exchange where a trader makes deals based on the actions of other participants on that platform. Usually, the actions of experts and experienced traders are used as a guide for beginner traders who try to copy their actions on their own platforms.
Using Social trading services, a novice Forex trader or one who does not want to risk his deposit can start trading with an eye on the decisions of experts. This lowers the barrier to entry caused by a lack of experience in Forex trading. It is enough to connect to the strategy of the selected network member, and the trades of the author of the strategy will be automatically repeated on your account.
In addition, as the name implies, with Social trading, participants not only copy the actions of others but also share information, and discuss ideas and strategies just like on any other social network.
eToro is the best offer for beginner traders, which is both a broker and a social network. Here users can copy the trades of professionals and communicate with them in real-time. Wide functionality and a large selection of traders open up unlimited opportunities for market participants.
In addition, eToro has introduced The Pause Copy feature in Copytrader, which allows you to stop copying a trader without, in effect, closing out all currently open positions. The company also has such a great feature as Smart Portfolios from Etoro. Each Smart Portfolio combines different assets or groups of traders and is constantly optimized using special algorithms.
Top VPN for Forex commodities trading
Many of us have become accustomed to using VPN services in real life, mainly to access our favorite streaming services or to provide ourselves with the necessary anonymity and protection. However, it can be indispensable not only for entertainment purposes but also for using VPN for Forex trading.
The best VPN services for Forex help bypass various blocking of brokerage sites, for example, if you are traveling and your favorite site is not supported in this country. Also, thanks to the tunneled encrypted connection, VPN will not allow fraudsters to determine the availability of funds in the accounts, transactions, and other system information of your trading. Also, if you use a VPN, your ISP will only see the IP address of the VPN server you are using and not the trading platform, which will be useful for example when trading Cryptocurrency so that your traffic is not limited and Crypto assets are confidential.
ProtonVPN is an excellent VPN provider with a user-friendly interface and many additional features that uses military-grade AES 256 encryption, which is arguably the best in this area and is used by armies around the world. In addition, perfect forward secrecy and the Diffie-Hellman protocol allow the secure generation of session keys.
The company offers 112 servers in 14 countries and network access through 10 devices with its own application that you can download to access the virtual private network on the device.
Click the button below to get the best VPN deal for Forex trading:
Besides, ProtonVPN provides free Proton Mail, the world’s largest secure email service, which is open source and protected by Swiss privacy law.
Overall, ProtonVPN is one of the best VPN providers for Forex trading.
Top trusted brokers for Forex commodities trading
Speculative trading in commodities provides market participants with the opportunity not only to diversify their portfolio but also to play on seasonal needs and international demand. Such goods are often the resources that support the world economy, and any change in it provokes fluctuations in the prices of commodities.
Many traders are repelled by trading in such assets due to the complexity of perception and the simple habit of trading currency pairs, however, you can start with free trading demo accounts in order to try various derivatives and hone your trading skills. In addition, it is worth mentioning that with our selection of the best brokers, you can open multiple accounts in order to compare different trading platforms, as well as receive many Forex bonuses of up to 100% on your first deposit. Register, verify your account, and start trading commodities on the most favorable terms.
Exness Forex trading
Exness is a large online broker that offers its clients the opportunity to trade FX and CFDs using the MT4 or MT5 platform as well as Exness’s own web terminal. Each of these platforms comes in desktop and mobile versions.
With mobile applications, traders get the opportunity to use fully interactive bar charts with 9-time frames, a customizable display chart with multi-window mode, easy viewing of prices and trading, and free financial news. The company also has free VPS hosting, which allows remote access to the trading terminal.
Clients can register accounts for retail and professional traders and select assets such as stocks, indices, metals, energies, and popular Cryptocurrencies Also, for the convenience of new clients, the broker offers a trial demo account.
There are various deposit and withdrawal methods offered by Exness such as MasterCard/Visa, Bank Wire payment transfers, CashU, WebMoney, etc. The company adheres to high standards of activity and transparency of transactions, which is confirmed by licenses from such organizations as FCA, CySEC, FSCA, FSC, FSA, and others. Try trading with Exness using our dedicated button below.
HF Markets Forex trading
HF Markets, known as HotForex before rebranding, is an online broker that is one of the most recognizable and trusted providers of Forex and CFD trading in stocks, indices, energies, and metals and metals.
Traders can register Micro, ZeroSpread, Premium, PAMM, Islamic Account, and HFcopy, as well as demos, to bring their trading skills to a professional level with a virtual balance without losing real money.
Among the trading terminals provided by HF Markets, there is MetaTrader 4, MetaTrader 5, MetaTrader WebTerminal, or Exness Terminal’s own development. The broker also has a mobile app for iOS and Android.
The company is highly regulated and over the years of its existence on the market has been able to obtain licenses from large organizations such as CySEC in Europe, FCA in the UK, FSCA in South Africa, DIFC in Dubai, and SFSA in Seychelles. Register an account using our special button below and get the best opportunities for trading commodities.
AvaTrade Forex trading
AvaTrade is one of the largest and most trusted online brokerage companies specializing in Forex and CFDs, as well as commodity and index trading.
The broker has various trading terminals, among which each trader can find the most suitable one for himself. So, for example, AvaTrade has the popular MetaTrader 4/5, WebTrader, and AvaOptions; AvaSocial, ZuluTrade, and DupliTrade for copy trades; AvaTradeGo, and Auto Trading – platforms for automatic trading.
Among the accounts, you can find a real and familiar demo account with a balance of $100000 to practice and choose the right tools.
To start trading, you need to replenish the account. AvaTrade allows you to use all the most popular payment systems that are in demand all over the world, such as credit cards, WebMoney, PayPal, skrill, as well as bank transfers.
AvaTrade has a very formidable regulatory base and is licensed by such institutions as IIROC, BVIFSC, FSCA, ASIC, ADGM, FSA, and FFAJ. You can learn more about trading with AvaTrade and test different trading platforms by clicking on the button.
eToro Forex trading
eToro is one of the most popular online brokerage companies that have CFDs on stocks, commodities, indices, ETFs, and currency pairs, as well as popular Cryptocurrencies including Bitcoin, Bitcoin Cash, Ethereum, Ethereum Classic, Ripple, Dash, and many more.
The company is famous for its Social and Copy Trading features with the ability to pause trades or follow an entire portfolio.
The company has its own trading terminal, which is available in two versions: in the web version, as well as in the eToro app for Android and iOS.
Clients can choose from multiple account types such as Retail and Professional Client, which have many risk management features such as negative balance protection. For beginners in trading, a free demo account with a virtual balance of $100000 is always available to test trading strategies and choose your favorite assets.
The company has an excellent reputation and licenses from such regulators as FCA, ASIC, and CySEC. Click the button below and test all the possibilities of trading with eToro.
Plus500 CFDs trading
Plus500 is a popular online brokerage company that offers CFDs on a variety of assets including currency pairs, indices, commodities, Cryptocurrencies, stocks, options, and ETFs.
Clients can trade on a convenient terminal developed by the company’s specialists by choosing accounts among real and demo. The demo account provides a deposit that you can use to work out your trading strategies and try different assets. Plus500 also has a mobile application for Android and iOS.
Plus500 is regulated by FCA (UK), CySEC (Cyprus), SFSA (Seychelles), AFSL issued by ASIC, FSP issued by the FMA (New Zealand), MAS (Singapore), and Authorized Financial Services Provider license issued by the FSCA ( South Africa).
82% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
Comment: The broker’s platform does not offer bonuses and Copy trading is not allowed when trading with Plus500.
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