Trading commodities and trading currencies are confusing to a new trader. So, what really is commodity online trading? Surely foreign exchange could be the thing that we are trading? What do commodities have to do with it?
Economics has something to do with this since commodity online trading is based on a specialized type of fundamental analysis of the forex markets. It is a strategy that recognizes that the economies of some countries that are heavily dependent on particular imports or, a lot more often, exports of raw materials such as oil, precious metals, agricultural products that contribute to an individual nation's GDP (Gross Domestic Product). Therefore, the price of individual countries' currencies will be linked to rises and falls in the cost of individual commodities, traders involved in commodity online trading can profit from following individuals costs.
Many developing countries rely more on the export of raw materials. Most traders involved in commodity online trading avoid these small currencies due to the following reasons: unpredictable political situation, low liquidity and extreme fluctuations.
This leaves us with three big commodity currencies that a trader might desire to get involved with namely the Canadian, Australian and New Zealand dollars. The Canadian dollar (CAD) is probably the most popular commodity currency for traders involved in commodity online trading. Since Canada is the world's second largest exporter of oil, the value of CAD will definitely be affected once there is a significant change in oil prices. When you combine this with the fact that the USA is usually a large importer of oil, it really is clear that the cost of the United States dollar (USD)/CAD pair is most likely to react strongly to a key shift in oil prices. Australia's big commodity export is gold. You could make a study of gold costs and their effect on Australian dollar (AUD) foreign exchange pairs but at the very least, if you're involved in any commodity online trading that includes AUD, you ought to keep an eye on gold rates. New Zealand's commodity exports are much more varied so when you trade a New Zealand dollar (NZD) pair, you will need to monitor the general commodity price index (CRB).
It is essential to fully grasp that even where the link is quite strong, currency values will not always respond to a change in commodity prices. Normal fluctuations tend to be ignored by the currency exchange market. Nonetheless, predictions or announcements of considerable changes in the rate of oil, for example, will likely be followed by a shift in USD/CAD. The shift in USD/CAD does not happen right away; therefore,a trader involved in commodity online trading can get ready while the trend is just forming.
Of course, other factors will also have an impact on costs. It truly is critical not to concentrate on commodity values to the exclusion of all else, or you could be caught out. A trader involved in trading certain currency pairs should be very well-versed regarding commodity online trading. Additional reminders for traders involved in commodity online trading are to closely monitor financial news in every country involved and also to check the financial news calendar at the Forex Factory.
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Posted by: Kate Jonson | 11/27/2011 at 02:52 AM