In order to determine if you should be trading Forex currencies or commodities. But first you must understand some basic facts about each type of trading and then we can compare the two. Let’s start with a basic explanation of each of these markets.
You should know these things before trading forex currencies or commodities
Forex is the trading of one type of currency for another. It is traded in currency pairs. In which you are buying one type of currency with another type of currency. So really one is the one you are buying, and the second type is the one you are selling. As the currency changes prices/ values, traders hope to make a profit buying at a low price and selling at a higher one. Commodities trading also requires speculation of what will happen to the prices of what you are planning on buying or selling. Commodities are raw materials such as metals, energy, livestock, gold, and agricultural products.
Dealing with commodities is an ancient occupation, dating back further than trading stocks or bonds. Olden civilizations traded a varied selection of commodities, from gold to spices. Commodity exchange was a vital business. While most of the principals were persons who actually made or used the physical goods in some way. There were risk-takers ready to bet a penny or three on the upcoming wheat harvest, for example.
Forex Currencies or Commodities: How they worked?
Both the Forex market and the Commodities market are driven by supply and demand. In the Commodities market that law is clearer to see. You can try to predict the increase or decrease in prices based on what the weather predictions, political climate. And its implications on these resources, strikes, wars, etc. Clearly nature is a much larger factor in the Commodities market then it is in the Forex market. Although it is important to note that unpredictable natural disasters affect the Forex market too. Since nature is much less predictable than economics it is evident that Forex is a somewhat safer form of trading than Commodities are.
Practicing on Demo accounts that are free is extremely common in the Forex market. But not so common in the Commodities market. Demo trading in the Commodities market is much less readily available. This is an important aspect of the decision to begin trading one market or the other. Generally commodities trading is more commonly done by professionals whereas Forex trading has been made extremely accessible to novices and traders who are interested in trading as a side business.
A Demo or dummy account is a trading account that enables a trader to become acquainted with a trading platform with fake money
Get up to date with Forex trading
One of the factors that makes Forex trading more approachable for novices & beginner traders is the amount of free educational resources & endless courses that are available around the web. Free information about Forex trading is extremely easy to find. Most brokerage websites have entire sections dedicated to free education & mini academies in which beginner traders may learn and practice the forex basics, forex jargon, read informative articles and follow real traders case studies.
There are countless youtube videos, webinars and articles teaching fledgling Forex traders how to get involved and hopefully be profitable. Videos encompassing all the bits and bytes linked to the Forex industry, including how to save yourself from taking risks, different trading strategies and their advantages, introductions to copy trading or social trading, and more. This is not the case for Commodities trading. There is information out there, but it is rarely free and there is significantly less volume available.
Another major difference between Forex trading and Commodities trading is the trading hours. The Forex market is open 24 hours a day because it is a worldwide market. All other markets have open and closing times. But it makes Forex trading more convenient and more flexible in terms of combining it with other work.
Each commodity broker needs papers to open an account. The forms need disclosure of financial information and recognize the dangers liked to trading commodities. Financial data is essential because commodities are extremely leveraged assets. There is an option that one can lose more money than financed in the first place. Hence, a broker needs data on income, net worth, and creditworthiness.
Not everyone who completes the account forms is suitable to open a commodities account. A broker may use discretion on whether a potential customer is an acceptable risk and is suited to trade commodities. Sufficient income, trading experience, and credit are critical elements of suitability. Since both Commodities trading and Forex trading can be fulfilling, profitable and exciting, it is important to weigh the advantages and disadvantages of each for your own personality and needs before deciding and entering into either one.