How Commodity Trading Works In Nigeria
Thanks to modern technology, Nigerians have access to a wide range of investment tools. Today, when the country’s economy is in dire straits, consumers seek alternative ways of earning. Full-time jobs are scarce. Meanwhile, the gig economy does not provide sufficient stability during a crisis, as the coronavirus pandemic has shown.
Online trading gives everyone a chance to work from the comfort of their homes. Commodities are just one of its dimensions, aside from currencies and stocks. With a consistent strategy, buying and selling of these assets bring sizable returns. Here is how the system works in Nigeria and South Africa.
Investopedia defines commodities as basic goods that are “interchangeable with other commodities of the same type.” These are often used as raw materials for other products. Examples include crude oil, grain, gold, silver, etc. The price of these goods is set by the market, regardless of individual producers. They may be bought and sold either directly or through derivatives. The latter is exactly what online commodity trading is about.
Commodities: Historical Perspective
The market for commodities – agricultural production, energy sources, and metals – was formed in the distant past, centuries ago. In Ancient Egypt, people were already selling basic resources abroad. Since then, commodities have been moving between countries.
In the past, the only parties involved were sellers and buyers of the products – e.g., mining companies and shipyards. Derivative operations were launched with the advent of futures. These are legal agreements to buy or sell a commodity at a particular time and price. Derivatives linked to such products also include options.
Today, the global market for commodity trading accepts speculators and day traders. While futures require sizable investments, CFDs are an affordable option for anyone. Here is an in-depth guide on what is commodity trading. Thanks to leverage from brokers like FXTM, it is possible to trade larger volumes than your deposit allows to afford. Online tools give easy access to CFDs for different commodities.
Basics of CFD Trading
In the past, a trader needed thousands of US dollars to enter the global marketplace. With CFDs, it is much cheaper to begin. These are virtual agreements on the subject of price. Their value depends on dynamics for the underlying asset – in this case, a commodity. Other types of CFDs are linked to market indices, stocks, and cryptocurrencies.
A major benefit is that holders do not own the assets – they only buy or sell CFDs. No actual barrels of oil or gold ingots change hands – a trader makes profit or loss based on price movement for the respective asset.
CFDs on commodities are added to investment portfolios for diversification purposes. Not only can they bring profit on their own. As risks are spread across a number of instruments, they are reduced. It is also a good measure to protect funds against inflation.
Benefits for Retail Traders
Often, CFDs as part of diversified portfolios provide hedging against losses. For instance, if a set of assets includes currency pairs, stocks, and CFDs, profits from the derivatives may compensate for underperformance in other fields. Other benefits include the following.
1. Leverage (Trading on Margin)
The arrangement allows a client to open a position for larger volumes than they can afford. The broker provides a portion of funds based on a predetermined ratio. This maximizes the trader’s purchasing power, along with potential returns and potential risks. It is an important advantage in comparison with conventional futures.
2. Profit From Any Trends
It is not just uptrends that can prove beneficial. Generally, CFDs may be bought low and sold high – just like stocks. Alternatively, if you expect the price for your CFDs to drop, you can sell them and buy back later – for less. A subsequent uptrend will also bring gains.
The Bottom Line
CFDs are derivative products that allow you to make a profit by speculating on the prices of commodities but without ownership of the respective assets. Today, these instruments may be bought and sold through desktop platforms and mobile apps. Leverage means that you can trade with bigger amounts than your deposit. If you are only discovering the opportunities of online trading, take advantage of the demo mode first.
Through a licensed broker, anyone can register an account and start trading today – even with the modest initial investment. Forex traders do not even have to switch software – most platforms that work with currency pairs allow management of CFDs. Develop a diverse portfolio and trade various assets with lower risk.