With Option500 trading platform, trading gold, oil, sugar, coffee or one of the many other commodities its easy and user friendly.
With such a huge assortment of commodities to choose from, you’ll be able to profit immensely.
You can choose from short-term options or long-term options based on your level of patience and endurance.
If you are an experienced CFD / Forex trader, log in to begin your trading session.
If you are new to CFD / Forex, contact us now and we will provide you with all the information you need to embark on a successful trading venture.
A Glimpse of Commodity Trading
There are two kinds of commodity options: put option and call option. It is imperative to know these kinds of options since it will aid you in determining when and how you can use it for your own benefit. Call options and put options give the buyer the right either to buy or sell based on the strike price within a given time. In the case of a call option, the seller is obligated to distribute the underlying commodity futures contracts or exercises. It means that the seller is usually forced to acquire a short position. On the other hand, the seller in “put” options is obligated to distribute a short position.
Likewise, there are two sides when it comes to option trading: the side of the buyer and seller. The buyer of a certain option has the obligation to pay the premium to the authorized seller of the commodity trading in order for the right to arise. This must first be fulfilled before the delivery can be had. The financial value obtained during this process can be treated as the option buyer’s asset. However, it is a liability in the case of the seller. Take note that each side experiences opposite outcomes.
Why Choose Commodity trading?
trading Commodity offers an effective and flexible way to trade in the world market, especially when it concerns commodity future contracts. Additionally, options on future contracts endow financiers with the ability to take and cope with risks. However, it is important that the likelihood of opportunities or chances can be endless. It will absolutely be determined by the risk tolerance, market sentiment, time horizon, and objectives of the traders.
Moreover, if you don’t possess a high degree of tolerance and an aggressive attitude for suffering and hardships, then don’t involve yourself in this. This kind of trading has high or elevated risks.
When Is the Appropriate Time To Commodity trading?
Options on commodities shall be used in times of extreme prices in order to see its full potential. Commodity markets usually present commodity brokers with an unusual prospect, even if the market is in the long-term lows and highs.
In the case where prices are at its extreme level, there are no boundaries to worry about since it never lasts long. Ultimately, the supply and demand factors in the commodity market have the ability to bring the prices back to a more balanced state. Consequently, though utmost attention is necessary during the extreme period, it is likely the best time to create counter trends for your trades.
Bear in mind that your personal circumstances would help you decide on whether you should utilize the limited or unlimited risk option.
Before you come up with any option system, it is imperative that you know how this works. The best system is one that resembles the type of market atmosphere where you want to trade. You should know that option prices are commonly known to be unpredictable and extremely unstable at times. All you need to do is link the long term plans of your preferred commodities such as oil, sugar, or soybeans to those of shares. In this way, you will immediately recognize how diverse the trading atmosphere can be.
Hence, it is vital that you select a CFD / Forex trading system that is suitable to the type of price action you want. Another factor that you should take note is that the commodity trading supply and demand are periodic in nature.
Which System Is the Best?
To determine which commodity CFD / Forex trading system will work best for you, it is important to classify it into two: volatile markets and trending markets.
As to volatile markets, commodity trading system is more of a product rather than shares in the company. Products like bonds, oil, wheat, and sugars are more pretentious because of the seasonal factors and natural disasters, except when the company’s prosperities are deeply linked with a certain product.
When it comes to trending markets, considering the seasonal effects on the prices in the commodity market will give you an idea of what to expect when a continuation or change of trend is going to happen. This being the case, you can select to just ‘go long’ either with put or call options. It should normally be at least 90 days from expiration. The preferred options to purchase under these circumstances are those that involve first strike price out-of-the-money or at-the-money.
Advantages When Opting for Commodity Trading
There are several advantages. However, the top advantages are big premiums, real diversification, and liquidity. In the case of premiums, striking premiums can be gathered. Different from equities, options on commodities must be traded in a one to three strike prices. At such aloof levels, short-term market changes will unlikely to have a big influence on the value of your options. Thus, time value erosion may be acceptable.
As to real diversification, by increasing your options, you will not only gain an asset that is uncorrelated to equities, your option positions whether short or long can also be uncorrelated. In cases concerning your stocks, the individual option will be mainly at the understanding of the index as an entirety.
In the case of liquidity, a lot of equity options traders or commodity traders criticize the poor liquidity hindering their efforts to enter long or short positions. While few futures contracts have advanced open interest as compared to others, tons of the major contracts like crude oil, natural gas, gold, grain, and sugar have considerable volume and open interest proposing tons of open contracts on every strike price.