Guide: What Are the Most Actively Traded Commodities?

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Triston Martin

Nov 02, 2022

Introduction

When actively trading commodities, liquidity is one of the most important factors. When there is a high volume of futures contracts traded on a particular commodity, it is much simpler to buy and sell in markets with small bid/offer spreads, which results in less slippage. The loss that occurs due to illiquidity and issues that crop up during the execution of trades is called slippage. Day traders and many large traders tend to focus on markets for commodities with a high volume of trading. Small-volume commodity markets are notorious for having prices subject to wild swings. Futures contracts on financial instruments are structured similarly to those on commodities because they fall under the Commodity Futures Trading Commission (CFTC) purview.

What To Look for When Considering Liquidity

Several indicators can assist us when deciding which commodities markets to trade in, allowing us to make the most informed decisions possible. A key factor to take into account is liquidity. It is essential to have the ability to enter and exit positions with minimum slippage to succeed. The reason why highly liquid commodities have a lower risk of slippage is not that they are more or less volatile than other commodities; rather, the reason is that more people trade in such commodities. When determining whether or not a commodity can be traded profitably, key metrics to keep an eye on include volume and open interest.

The overall number of contracts that are traded is referred to as a market's volume, and the total number of open long and short positions is referred to as open interest. The less slippage there is in a commodity, the more volume and open interest there is in that commodity. Futures exchanges worldwide, including the Chicago Mercantile Exchange (CME) and the Intercontinental Exchange (ICE), are responsible for publishing the volume and open interest data for their respective markets. Remember that the commodities being traded the most active today may not be the same ones being traded the most actively tomorrow.

In the markets, action tends to breed more action. When oil prices become extremely unpredictable, more price speculators enter the market. This results in a rise in both volume and open interest. If a commodity's price stays stable and the trading range gets smaller, speculators will be less likely to engage in the activity because the opportunity for profit will decrease. As a natural consequence, this will reduce the volume and open interest in that market. When considering whether or not to trade on or invest in a particular asset, you must always consider the liquidity and interest levels of the market in question. The top ten most traded commodities are as follows:

Crude oil

It shouldn't come as a surprise that this is the case; taking into account its demand on a global scale and the rate at which our energy consumption is escalating out of control in our increasingly industrializing economies, there will always be an urgent need for sources of energy and fuel.

Coffee

Coffee is one of the world's oldest and most widely used beverages, with over 2.25 billion cups drunk daily. It is also the world's second most widely traded commodity, only behind crude oil.

Natural Gas

Despite the increasing attention being paid to the development of renewable energy sources, natural gas continues to be one of the most actively traded commodities on the planet. This is because natural gas can be utilized as a source of energy and fuel in practically any situation.

Gold

Gold has always been considered a precious commodity throughout history, but it has become increasingly popular with investors due to its consistently rising value in recent years.

Brent Oil

The price of Brent crude, used as a standard for determining the cost of oil purchases worldwide, is most commonly utilized in Europe and Africa.

Silver

Silver has a long history of serving as an asset that is reliable as an investment and a foundation for portfolio consistency. In addition to its significance for aesthetics, it is also utilized in producing high-precision medical equipment and many industrial processes.

Sugar

Sugar, obtained from sugar cane, is a commodity traded in virtually every country around the globe. The yearly sugar consumption is expected to hit 257 million tonnes by 2030.

Corn

Maize is widely regarded as one of the most adaptable agricultural commodities. Over the past decade, the production of biofuels has contributed significantly to a rise in the demand for corn. Corn has evolved into such a valuable commodity that the United States now cultivates it on more than 80 million acres specifically for that purpose.

Wheat

Wheat is not only an important food source all over the world because it is used in creating a wide variety of food products, including cereal, bread, and flour. It is also an important commodity because of the world's dependence on wheat.

Cotton

Cotton is one of the oldest known fibres on the planet and has been traded for thousands of years. Cotton is also one of the most popular textile materials. Cotton's status as one of the most widely traded commodities in the world is justified by the fact that it is used to produce the vast majority of our clothing.

Conclusion

It is important to remember that every commodity is unique, and as a result, the prices of different commodities are determined by a diverse set of characteristics. For instance, the price of gold and silver can be moved up or down in response to shifts in the demand for jewellery and variations in the desire for an asset that can be used as a store of value. During economic unpredictability, there may be a rise in demand for gold and other investments related to gold as a mechanism for investors to safeguard their capital. Because of this, you must conduct an in-depth investigation before deciding to trade in commodities.


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