Compared to other markets, commodities are more affected by production levels, transportation conditions, warehouse inventories, weather, seasonal trends, and the level of economic activity. In this section, we review in full the key factors that affect prices and the trading conditions in the commodities market.
When analyzing the commodities market, traders, in addition to a technical view, pay special attention to the supply and demand situation of the selected instrument (production, inventories, production costs, transportation, and supply chain disruptions).
The Forex market is more sensitive to monetary policy, interest rate differentials, macroeconomic data, and capital flows.
Indices move more along the path of economic growth, corporate profitability, and stock market sentiment.
Commodities receive more attention when the market becomes more sensitive to inflation, production costs, supply shocks, or changes in global demand, because prices tend to react faster to real supply chain changes and inflation expectations.
When supply conditions change
Commodities react to production disruptions, shortages, export restrictions, or even oversupply, because these factors directly affect access to goods and market balance.
When weather patterns shift
In agricultural commodities, weather can change expectations about production and harvest; therefore, prices may sometimes move even without a real change in these amounts and only by reacting to news that changes expectations.
When global demand grows or slows down
Some commodities are sensitive to growth and recession cycles, industrial consumption, and the level of economic activity; in other words, a change in the pace of the global economy can lead to a change in demand and, ultimately, a price move.
Note that the factors mentioned above alone cannot show price changes or the true direction of price with certainty. In addition, unexpected events can also change market conditions. As a result, always follow risk management in your trades.
The commodities market has specific risks, and reviewing them can help prevent potential losses in trading:
Uncertainty in
identifying weather
conditions
Events such as floods,
war, earthquakes,
and more
Supply chain
disruption and supply
shocks
Seasonal and cyclical
volatility
Higher risk in
leveraged trading
At Aron Groups Broker, access to hundreds of symbols in the commodities market is available.
For more information about each symbol, go to its dedicated page.
Before you start trading commodities and other instruments, we suggest reviewing the trading conditions
and costs so you can enter the real market with more awareness.
Traders usually pay close attention to the following trading costs.
Also, to see the exact details of these costs, you can go to the page of the selected symbol.
Spreads are offered as fixed and floating.
Leverage is a tool that allows you to enter trades with a value higher than your current account balance.
An overnight interest fee is deducted as a commission for holding and rolling your open trades from one trading day to the next.
ECN (This execution model guarantees speed, security, and quality in trading.)
The order execution model in all Aron Groups accounts is ECN. In the ECN execution model,
your order is connected directly to the main liquidity providers without the intervention of a dealing desk.
The following items are more important when reviewing the contract size for commodities:
This means how many units of the underlying asset 1 standard lot equals, and it shows that with 1 lot, you are exposed to the price movement of exactly how much of the asset.
This depends on leverage, the live price of the symbol, and the contract size, and it is reviewed to ensure that with a normal market move, you do not reach stop out or margin call.
This helps you choose times when liquidity is usually better and spread behavior is more reasonable. Commodities can have higher spreads during low depth market hours.
In MetaTrader 5, go to Market Watch, right click on your selected symbol, and choose Specifications.
To better understand how instruments in the commodities market behave differently from other financial markets, including Forex, crypto, indices, stocks, and more, you can go to the All Markets page.
By registering with Aron Groups Broker, you get access to hundreds of tradable symbols in the commodities market and other markets.
Supply and demand changes are the main driver of price movement in all markets. In the commodities market, a change in the speed and cost of supplying goods, such as oil, wheat, and more, can affect price.
On the other hand, demand in the commodities market can vary in different periods. For example, silver may become scarce, platinum may be used in a new industry, or wheat cultivation worldwide may face a crisis.
All of these examples directly affect the level of demand for a specific commodity.
Because a major part of supply and demand in commodities is tied to weather, consumption cycles, harvest seasons, and inventory patterns. For example:
Inventory and supply demand reports for energy, production and harvest reports for agricultural commodities, or news about mining and warehouse inventories for metals can increase price volatility.
A change in interest rates or interest rate expectations can affect the US Dollar index, financing costs, and therefore many commodities. This impact is especially more visible in precious metals, particularly global gold.
Production disruption, a halt or reduction in production, export restrictions, sanctions, transportation issues, or geopolitical risks can create large price changes in a short time.
A change in the growth outlook, a global recession, changes in industrial consumption, or meaningful changes in physical demand, for example from industries, refineries, or seasonal consumption, can increase volatility.
Cold and heat waves, drought, floods, storms, or changes in rainfall patterns can quickly change production and harvest expectations in agricultural commodities.
Trading commodities, in addition to monetary policy, the strength of the dollar, economic health, and economic growth, is also affected by unexpected events. For example, if silver becomes scarce globally, there may be an unprecedented rise in this metal, and short trades, even at the highest prices, can carry high risk.
Note that even if you consider all factors that affect commodity prices, there is still a possibility of error in your forecast.
Commodity prices can reflect physical supply and demand, production and transportation costs, inventory levels, and supply chain risks.
In the Forex market, interest rate differentials, monetary policy, and capital flows between currencies play a bigger role.
The indices market shows profitability, growth, and stock market sentiment, because indices are an average of the group behavior of a set of companies.
