Commodity CFDs are derivatives that allow you to speculate on the price movements of underlying commodities without having to purchase or sell the underlying assets physically.
When trading commodity CFDs, you will be taking a position on whether you think the price of the underlying commodity will rise or fall. If your prediction is correct, you will make a profit. If your prediction is incorrect, you will incur a loss.
CFD trading is a popular way to trade commodities in Sydney due to the many benefits. These benefits include leverage, which allows you to control a more prominent position than your investment would otherwise allow, and short selling, which allows you to profit from falling prices.
Find a CFD broker
There are many CFD brokers available in Australia. To find a CFD broker Australia that suits your needs, you can compare different brokers online or speak to friends or family who may have experience with CFD trading.
When comparing different brokers, there are a few things you should look for:
- The amount of leverage offered
- The range of commodities available to trade
- The fees charged by the broker (e.g. commissions and spreads)
- The platform offered by the broker (e.g. MetaTrader 4, WebTrader)
Open an account and fund it
Once you have found a suitable broker, you will need to open an account and deposit funds into it. Most brokers will require you to deposit a minimum amount of money into your account before you can start trading.
When funding your account, you should consider how much money you are willing to risk. It is essential to invest an amount of money that you are comfortable losing.
Choose the commodity you want to trade
There are many different commodities available for CFD trading, including metals (such as gold and silver), energy products (such as crude oil and natural gas) and agricultural products (such as corn and wheat).
Once you have decided which commodity you want to trade, you will need to choose the contract size. The contract size is the amount of the underlying commodity that each CFD covers. For example, if you buy one gold CFD, you are buying 100 troy ounces of gold.
Choose your position (buy or sell)
Once you have chosen the commodity you want to trade and the contract size, you will need to choose whether to take a long or short position.
If you think the commodity’s price will rise, you will need to take a long position. You will buy the CFD at the current price and sell it at a higher price in the future to make a profit.
If you think the commodity’s price will fall, you will need to take a short position. You will sell the CFD at the current price and repurchase it at a lower price in the future to make a profit.
Enter your trade
Once you have chosen your position, you will need to enter your trade. To do this, you will need to use a trading platform. Most brokers will offer their proprietary trading platforms or allow you to use a popular third-party platform such as MetaTrader 4.
When entering your trade, you will need to specify the following:
- The amount of money you are willing to risk (your stake)
- The price at which you want to enter the market (your entry price)
- The price at which you want to exit the market (your exit price)
Monitor your trade
Once your trade is open, you will need to monitor it to ensure that it is going in the desired direction. If the price moves against you, you may incur a loss.
Most trading platforms will provide you with access to charts and other tools to track the underlying commodity’s price movements to help you monitor your trade.
Close your trade
Once you have made the desired profit or loss, you will need to close your trade. You will need to enter an order to buy or sell the CFD at its current market price.
Most brokers will allow you to close your trade early if you are in profit and want to take your profits before the price reverses. However, you will usually incur a small fee if you do this.