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Commodities‌ ‌Trading‌ ‌Strategies‌ ‌Are‌ ‌ Essential‌ ‌In‌ ‌The‌ ‌Financial‌ ‌Markets‌ ‌

 ‌ ‌Image‌ ‌Credits:‌ ‌‌Pixabay‌ ‌ ‌ ‌ ‌Commodities‌ ‌are‌ ‌the‌ ‌main‌ ‌essentials‌ ‌in‌ ‌daily‌ ‌life.‌ ‌According‌ ‌to‌‌ ‌‌Investopedia‌,‌ ‌the‌ ‌term‌ ‌“commodity”‌ ‌refers‌ ‌to‌ ‌“…a‌ ‌basic‌ ‌good‌ ‌used‌ ‌in‌ ‌commerce‌ ‌that‌ ‌is‌ ‌interchangeable‌ ‌with‌ ‌other‌ ‌goods‌ ‌of‌ ‌the‌ ‌same‌ ‌type.‌ ‌Traditional‌ ‌examples‌ ‌of‌ ‌commodities‌ ‌include‌ ‌grains,‌ ‌gold,‌ ‌beef,‌ ‌oil,‌ ‌and‌ ‌natural‌ ‌gas.”‌ ‌ ‌For‌ ‌traders,‌ ‌however,‌ ‌commodities‌ ‌trading‌ ‌comes‌ ‌into‌ ‌the‌ ‌forefront,‌ ‌especially‌ ‌when‌ ‌other‌ ‌financial‌ ‌markets‌ ‌become‌ ‌volatile.‌ ‌Because‌ ‌the‌ ‌prices‌ ‌of‌ ‌commodities‌ ‌tend‌ ‌to‌ ‌move‌ ‌in‌ ‌the‌ ‌opposite‌ ‌direction‌ ‌compared‌ ‌to‌ ‌the‌ ‌prices‌ ‌of‌ ‌stocks,‌ ‌some‌ ‌investors‌ ‌find‌ ‌it‌ ‌best‌ ‌to‌ ‌diversify‌ ‌their‌ ‌portfolios‌ ‌by‌ ‌including‌ ‌commodity‌ ‌investments‌ ‌and‌ ‌other‌ ‌traditional‌ ‌securities.‌ ‌ ‌Nevertheless,‌ ‌commodities‌ ‌are‌ ‌also‌ ‌considered‌ ‌risky‌ ‌investments,‌ ‌mainly‌ ‌because‌ ‌traders‌ ‌need‌ ‌to‌ ‌observe‌ ‌a‌ ‌plethora‌ ‌of‌ ‌considerations,‌ ‌including‌ ‌unprecedented‌ ‌disruptions‌ ‌like‌ ‌epidemics,‌ ‌weather‌ ‌patterns,‌ ‌and‌ ‌disasters.‌ ‌Hence,‌ ‌traders‌ ‌capitalize‌ ‌on‌ ‌the‌ ‌ever-constant‌ ‌fluctuations‌ ‌in‌ ‌supply‌ ‌and‌ ‌demand‌ ‌of‌ ‌their‌ ‌chosen‌ ‌commodity‌ ‌investments.‌ ‌Commodities‌ ‌trading‌ ‌during‌ ‌COVID-19‌ ‌The‌ ‌advent‌ ‌of‌ ‌the‌ ‌2019‌ ‌coronavirus‌ ‌(COVID-19)‌ ‌brought‌ ‌about‌ ‌a‌ ‌massive‌ ‌impact‌ ‌on‌ ‌the‌ ‌financial‌ ‌market.‌ ‌Establishments,‌ ‌all‌ ‌over‌ ‌the‌ ‌world,‌ ‌were‌ ‌forced‌ ‌to‌ ‌decrease‌ ‌import-export‌ ‌necessities,‌ ‌shorten‌ ‌daily‌ ‌business‌ ‌hours,‌ ‌and‌ ‌even‌ ‌make‌ ‌do‌ ‌with‌ ‌limited‌ ‌workforce.‌ ‌To‌ ‌mitigate‌ ‌rapid‌ ‌COVID-19‌ ‌transmission,‌ ‌most‌ ‌governments‌ ‌were‌ ‌forced‌ ‌to‌ ‌initiate‌ ‌various‌ ‌lockdowns‌ ‌and‌ ‌enact‌ ‌different‌ ‌protocols.‌ ‌ ‌In‌ ‌the‌ ‌United‌ ‌States‌ ‌alone,‌ ‌a‌‌ ‌‌research‌ ‌study‌‌ ‌done‌ ‌by‌ ‌PNAS‌ ‌(Proceedings‌ ‌of‌ ‌the‌ ‌National‌ ‌Academy‌ ‌of‌ ‌Sciences‌ ‌of‌ ‌the‌ ‌United‌ ‌States‌ ‌of‌ ‌America)‌ ‌posits‌ ‌that‌ ‌41.3%‌ ‌of‌ ‌establishments‌ ‌had‌ ‌to‌ ‌halt‌ ‌business‌ ‌due‌ ‌to‌ ‌the‌ ‌pandemic‌ ‌temporarily.‌ ‌Consequently,‌ ‌these‌ ‌protective‌ ‌measures‌ ‌resulted‌ ‌in‌ ‌massive‌ ‌unemployment‌ ‌as‌ ‌well‌ ‌as‌ ‌diminished‌ ‌food‌ ‌security.‌ ‌These‌ ‌protective‌ ‌measures,‌ ‌then,‌ ‌caused‌ ‌heightened‌ ‌volatility‌ ‌in‌ ‌the‌ ‌financial‌ ‌market‌ ‌with‌ ‌both‌ ‌forex‌ ‌and‌ ‌cryptocurrency‌ ‌exchange‌ ‌witnessing‌ ‌an‌ ‌apparent‌ ‌dip,‌ ‌especially‌ ‌earlier‌ ‌this‌ ‌year.‌ ‌ ‌Nonetheless,‌ ‌other‌ ‌businesses‌ ‌boomed‌ ‌during‌ ‌the‌ ‌onset‌ ‌of‌ ‌the‌ ‌said‌ ‌pandemic.‌‌ ‌‌Major‌ ‌providers‌ ‌of‌ ‌various‌ ‌products‌ ‌like‌ ‌face‌ ‌masks,‌ ‌personal‌ ‌protective‌ ‌equipment‌ ‌(PPE),‌ ‌disinfectants,‌ ‌multivitamins,‌ ‌and‌ ‌tissue‌ ‌paper‌ ‌witnessed‌ ‌an‌ ‌abnormal‌ ‌upsurge‌ ‌in‌ ‌sales‌ ‌as‌ ‌people‌ ‌started‌ ‌panic-buying‌ ‌and‌ ‌stock-piling.‌ ‌ ‌Commodities‌ ‌trading‌ ‌strategies‌ ‌There‌ ‌are‌ ‌a‌ ‌variety‌ ‌of‌ ‌strategies‌ ‌utilized‌ ‌in‌ ‌commodities‌ ‌trading.‌ ‌Depending‌ ‌on‌ ‌timing,‌ ‌level‌ ‌of‌ ‌expertise,‌ ‌and‌ ‌investment‌ ‌capacity,‌ ‌these‌ ‌strategies‌ ‌are‌ ‌deemed‌ ‌useful‌ ‌and‌ ‌sustainable‌ ‌in‌ ‌commodities‌ ‌trading.‌ ‌Seasonality‌ ‌Considered‌ ‌to‌ ‌be‌ ‌the‌ ‌most‌ ‌basic‌ ‌strategy‌ ‌in‌ ‌commodities‌ ‌trading,‌ ‌seasonality‌ ‌refers‌ ‌to‌ ‌the‌ ‌time‌ ‌when‌ ‌certain‌ ‌commodities‌ ‌are‌ ‌in‌ ‌demand‌ ‌or‌ ‌not.‌ ‌Traders,‌ ‌even‌ ‌new‌ ‌ones,‌ ‌capitalize‌ ‌on‌ ‌the‌ ‌seasons‌ ‌to‌ ‌either‌ ‌purchase‌ ‌or‌ ‌sell‌ ‌a‌ ‌commodity.‌ ‌ ‌For‌ ‌instance,‌ ‌heating‌ ‌oil‌ ‌is‌ ‌in‌ ‌high‌ ‌demand‌ ‌during‌ ‌the‌ ‌winter‌ ‌and‌ ‌is‌ ‌not‌ ‌necessary‌ ‌during‌ ‌the‌ ‌summer.‌ ‌Thus,‌ ‌the‌ ‌selling‌ ‌price‌ ‌of‌ ‌heating‌ ‌oil‌ ‌soars‌ ‌during‌ ‌the‌ ‌cold‌ ‌months‌ ‌and‌ ‌plummets‌ ‌during‌ ‌the‌ ‌warm‌ ‌months.‌ ‌Hence,‌ ‌traders‌ ‌can‌ ‌maximize‌ ‌this‌ ‌trend‌ ‌by‌ ‌saving‌ ‌up‌ ‌on‌ ‌heating‌ ‌oil‌ ‌stocks‌ ‌during‌ ‌the‌ ‌summer‌ ‌and‌ ‌selling‌ ‌them‌ ‌during‌ ‌the‌ ‌winter.‌ ‌ ‌Nonetheless,‌ ‌this‌ ‌simple‌ ‌pattern‌ ‌can‌ ‌also‌ ‌be‌ ‌affected‌ ‌by‌ ‌unexpected‌ ‌issues.‌ ‌Grains,‌ ‌for‌ ‌example,‌ ‌can‌ ‌be‌ ‌severely‌ ‌affected‌ ‌by‌ ‌certain‌ ‌weather‌ ‌conditions.‌ ‌A‌ ‌sudden‌ ‌onslaught‌ ‌of‌ ‌drought‌ ‌can‌ ‌obliterate‌ ‌grains’‌ ‌fields,‌ ‌thereby‌ ‌affecting‌ ‌the‌ ‌predicted‌ ‌supply-and-demand‌ ‌in‌ ‌the‌ ‌market.‌ ‌Focus‌ ‌To‌ ‌make‌ ‌commodities‌ ‌trading‌ ‌even‌ ‌more‌ ‌successful,‌ ‌traders‌ ‌are‌ ‌encouraged‌ ‌to‌ ‌focus‌ ‌on‌ ‌a‌ ‌limited‌ ‌number‌ ‌of‌ ‌commodity‌ ‌investments.‌ ‌Cited‌ ‌as‌ ‌‌one‌ ‌of‌ ‌the‌ ‌most‌ ‌potent‌ ‌strategies‌,‌ ‌focusing‌ ‌on‌ ‌a‌ ‌specific‌ ‌segment‌ ‌product‌ ‌necessitates‌ ‌increased‌ ‌patience.‌ ‌In-depth‌ ‌analysis‌ ‌and‌ ‌research‌ ‌of‌ ‌the‌ ‌commodity‌ ‌must‌ ‌be‌ ‌done.‌ ‌Also‌ ‌included‌ ‌must‌ ‌be‌ ‌its‌ ‌historical‌ ‌trends‌ ‌in‌ ‌the‌ ‌market.‌ ‌Fundamental‌ ‌assessment‌ ‌Fundamental‌ ‌assessment‌ ‌refers‌ ‌to‌ ‌a‌ ‌general‌ ‌analysis‌ ‌of‌ ‌a‌ ‌particular‌ ‌commodity.‌ ‌An‌ ‌essential‌ ‌aspect‌ ‌of‌ ‌this‌ ‌strategy‌ ‌is‌ ‌supply-and-demand.‌ ‌Traders‌ ‌require‌ ‌research‌ ‌on‌ ‌the‌ ‌origin‌ ‌of‌ ‌the‌ ‌product‌ ‌and‌ ‌its‌ ‌client‌ ‌base‌ ‌to‌ ‌predict‌ ‌the‌ ‌commodity‌ ‌stocks‌ ‌needed‌ ‌and‌ ‌the‌ ‌upper-‌ ‌and‌ ‌lower-‌ ‌limits‌ ‌of‌ ‌its‌ ‌price.‌ ‌Scalping‌ ‌A‌ ‌day‌ ‌trading‌ ‌strategy,‌ ‌scalping,‌ ‌refers‌ ‌to‌ ‌gaining‌ ‌minuscule‌ ‌profits‌ ‌from‌ ‌temporary‌ ‌fluctuations‌ ‌in‌ ‌commodity‌ ‌prices.‌ ‌Attributed‌ ‌to‌ ‌the‌ ‌quantity-over-quality‌ ‌ratio,‌ ‌traders‌ ‌focus‌ ‌on‌ ‌making‌ ‌small‌ ‌profits‌ ‌by‌ ‌increasing‌ ‌fruitful‌ ‌exchanges‌ ‌based‌ ‌on‌ ‌volatile‌ ‌price‌ ‌hikes‌ ‌and‌ ‌dips.‌ ‌Arbitrage‌ ‌Trading‌ ‌To‌ ‌fully‌ ‌maximize‌ ‌the‌ ‌volatility‌ ‌in‌ ‌the‌ ‌market‌ ‌and‌ ‌the‌ ‌law‌ ‌of‌ ‌supply-and-demand,‌ ‌traders‌ ‌can‌ ‌also‌ ‌utilize‌ ‌arbitrage‌ ‌trading.‌ ‌ ‌ ‌“Arbitrage‌ ‌is‌ ‌a‌ ‌form‌ ‌of‌ ‌trading‌ ‌that‌ ‌takes‌ ‌advantage‌ ‌of‌ ‌price‌ ‌discrepancies‌ ‌of‌ ‌the‌ ‌same‌ ‌cryptocurrency‌ ‌from‌ ‌different‌ ‌exchanges.‌ ‌It‌ ‌is‌ ‌an‌ ‌investment‌ ‌strategy‌ ‌that‌ ‌guarantees‌ ‌a‌ ‌positive‌ ‌payoff‌ ‌in‌ ‌some‌ ‌contingency‌ ‌with‌ ‌no‌ ‌possibility‌ ‌of‌ ‌a‌ ‌negative‌ ‌payoff‌ ‌and‌ ‌no‌ ‌net‌ ‌investment.‌ ‌These‌ ‌discrepancies‌ ‌occur‌ ‌when‌ ‌multiple‌ ‌exchanges‌ ‌are‌ ‌differently‌ ‌pricing‌ ‌a‌ ‌coin,”‌ ‌explains‌ ‌Tony‌ ‌Jackson,‌ ‌CEO‌ ‌of‌ ‌Jubilee‌ ‌Group’s‌ ‌‌JENCO‌,‌ ‌a‌ ‌decentralized‌ ‌finance‌ ‌platform.‌ ‌ ‌“Traders‌ ‌can‌ ‌use‌ ‌an‌ ‌automated‌ ‌trading‌ ‌system‌ ‌as‌ ‌part‌ ‌of‌ ‌an‌ ‌arbitrage‌ ‌trading.‌ ‌Automated‌ ‌trading‌ ‌systems‌ ‌rely‌ ‌on‌ ‌algorithms‌ ‌to‌ ‌spot‌ ‌price‌ ‌differentials‌ ‌on‌ ‌different‌ ‌exchanges.‌ ‌It‌ ‌allows‌ ‌traders‌ ‌to‌ ‌jump‌ ‌on‌ ‌the‌ ‌arbitrage‌ ‌opportunity‌ ‌before‌ ‌it‌ ‌becomes‌ ‌common‌ ‌knowledge,‌ ‌and‌ ‌the‌ ‌market‌ ‌adjusts‌ ‌the‌ ‌inefficiencies,”‌ ‌concludes‌ ‌Jackson.‌ ‌Conclusion‌ ‌To‌ ‌fully‌ ‌utilize‌ ‌market‌ ‌volatility‌ ‌and‌ ‌minimize‌ ‌the‌ ‌impact‌ ‌of‌ ‌the‌ ‌current‌ ‌COVID-19‌ ‌pandemic,‌ ‌traders‌ ‌are‌ ‌encouraged‌ ‌to‌ ‌maximize‌ ‌the‌ ‌different‌ ‌strategies‌ ‌proven‌ ‌to‌ ‌be‌ ‌useful‌ ‌in‌ ‌commodities‌ ‌trading.‌ ‌ ‌ ‌Because‌ ‌commodities‌ ‌trading‌ ‌heavily‌ ‌relies‌ ‌on‌ ‌the‌ ‌law‌ ‌of‌ ‌supply-and-demand,‌ ‌it‌ ‌is‌ ‌essential‌ ‌to‌ ‌look‌ ‌into‌ ‌the‌ ‌current‌ ‌needs‌ ‌of‌ ‌the‌ ‌consumers‌ ‌and‌ ‌focus‌ ‌on‌ ‌the‌ ‌commodities‌ ‌that‌ ‌are‌ ‌highly‌ ‌in‌ ‌demand‌ ‌during‌ ‌this‌ ‌pandemic.‌ ‌This‌ ‌significant‌ ‌disruption‌ ‌is‌ ‌predicted‌ ‌to‌ ‌have‌ ‌a‌ ‌long-lasting‌ ‌impact‌ ‌on‌ ‌the‌ ‌financial‌ ‌market‌ ‌as‌ ‌well‌ ‌as‌ ‌daily‌ ‌life.‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌