The Future Outlook Of Commodities Market And How To Trade Them On A Short Position
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Taking advantage of price drops - short selling of goods
The financial market is where investors express their views on the future price of assets such as oil, gas, ExxonMobil and Shell. In the stock market, prices do not always go up. In the case of ordinary assets, a fall in prices is associated with losses for investors. In the case of trading CFDs ( Contract for Differences ) - price drops may be positively perceived by investors betting on such a scenario.
Thanks to the available CFD instruments, market participants can invest both during an uptrend, when prices go up, and during price decreases. As a result, even when the market goes down, traders who correctly predicted the downside can make profits. At the same time, when the market changes direction and starts to grow, they will record a loss. CFD traders earn the difference between the entry price and the exit price of a position.
The reason for taking a short position (SELL) on a commodity may be overvaluation, increasing supply and decreasing demand, poor financial report or deteriorating sentiment in the industry or, on the contrary, very positive investor sentiment, which may turn into declines in accordance with the principle "it's so good" that it can only get worse" and attract " contrarian " investors who like to be "right" faster than the market.
The future of the commodity market
Like technology, the raw materials industry evolves and trends change. Commodity revolutions typically take decades and require the entire infrastructure and industry to adapt, but keep in mind that they are possible. Due to the growing environmental awareness, the world's richest countries and consumers are moving away from fossil fuels, the extraction of which leaves an environmentally harmful carbon footprint. An example of a catalyst for change is the EU ban on the sale of new cars with internal combustion engines after 2035. This can increase the demand for raw materials needed to build electric motors, batteries and accumulators, such as lithium. This ban may also have an impact on the oil market. On the other hand, the demand for solar energy may prove to be a catalyst for increases in the price of silicon, which is used in the production of solar panels.
The new situation creates new investment opportunities; over the past few years, the assets of photovoltaic panel manufacturers, wind turbine manufacturers and uranium mining companies have gained significantly. Natural gas stands out among the most environmentally friendly fossil fuels, but due to supply issues, economies are likely to shift to sources that do not carry similar risks.
Therefore, the beneficiaries of changes in the energy sector may include nuclear, wind and solar energy as well as various alternative sources. Speculators are also attracted to the still abstract vision of extracting energy resources and elements beyond Earth, such as helium-3 found on the moon.
Natural gas and crude oil prices soared in 2022, and therefore we may face a particularly turbulent period. Due to its strategic importance, the commodity market will attract a lot of attention from the markets, and the return of high volatility will attract investors and traders .
How to make a transaction in XTB
XTB currently offers 26 CFDs on commodities and allows you to trade both during rising (BUY) and falling (SELL) prices. Offered commodity contracts are in a separate tab, where they are additionally grouped into separate commodity classes. In addition, the search bar in the Market Watch window makes it easier to find a specific stock.
Trading CFDs on commodities on the XTB trading platform is intuitive. The best way to place a trade is to use the classic order window with full trade information, which can be accessed by clicking the "+" symbol next to the relevant instrument.
In the order window, you can define its parameters, such as the size of the transaction or the levels of defense orders - TP and SL. The built-in investment calculator calculates the costs and other values related to the order on an ongoing basis.
To make a trade, click on the "Buy" or "Sell" button, depending on the chosen direction. An open order will immediately appear in the order panel at the bottom of the platform, where you can also check the result of the trade. From this panel, it is possible to modify open positions in terms of Stop Loss and Take Profit order levels , as well as close transactions.
