What are binary options commodities? Commodities are a class of assets which are traded on the binary platforms that showcase the various agricultural and extracted products. These commodities are usually listed on commodities exchanges in specific trading hubs across the world.
Generally speaking, commodity trading is tightly regulated and the contract specifications are more stringent than the currency or stock markets. While a stock price may not experience much intraday movement, the same cannot be said of commodity prices. Many retail traders cannot afford to trade commodities on the regular exchanges because of the high margin requirements. This is why the ability to trade Up/Down contracts on commodities binary options is a welcome alternative for these traders. With binary options commodities, the minimum trade requirement on most platforms is something that retail traders can generally afford. Even though it is hard to find pairs binary options being offered for commodities, the regular trade types such as the Up/Down option are a favoured option.
What are the Popular Commodities Binary Options?
The commodities which are traded as binary options commodities are drawn from the famous commodity trading hubs. The most commonly traded commodities binary options are:
- Crude oil
- Natural gas
We can see that these commodities are derivatives of agricultural cash crops, or are metals which are extracted from the ground. These commodities have various domestic and industrial uses. These constitute the factors that determine the demand and supply of these commodities in the global markets and hence their prices.
Is it easy to trade commodities on the various broker platforms? No it is not easy. Indeed, many traders will need to do even more work in understanding the nature of commodity markets. Many of these lessons will require not just demo account practice, but also practice on regulated platforms that offer low deposit accounts or no deposit bonus accounts. This is the only safe way to get a grasp the basics of binary commodities trading before committing a larger amount of funds to the exercise.
Followers of the Sharia principles of investing may also wonder if trading commodities is halal. There are brokers that offer halal trading conditions for such traders.
What Differentiates Commodities Binary Options & Commodities?
Certain differences exist between trading commodities through binary options and commodities trading in the conventional markets. Some may even wonder if binary options are a good way of trading commodities. Let’s look at the key differences between trading commodities binary options and trading commodities in the conventional stock exchanges?
- Commodities markets are traded on leverage and have high margin requirements. It is possible to borrow from the broker in the commodities market to execute trades. You will find out that in binary options, the market is unleveraged. The trader will have to come up with the full value of funds required for commodities binary options trading.
- Returns and payouts on investment in conventional commodity markets are determined by trade size and the number of points that the price has moved in the trader’s chosen direction. In binary options commodities, just one pip in the Up/Down trade can earn the trader the payout if the move was in the chosen direction.
- In binary commodities trading, the actual commodity is not held in physical form. In conventional commodities futures trading, there is actual delivery of the commodity in question. But if the commodities were traded as CFDs or as options, then the same conditions of non-delivery will apply.
- When it comes to expiry times, traditional commodities markets and binary options commodities share a common factor. The trades will eventually expire, though the expiry times will be different.
- The same commodity assets traded on conventional exchanges are presented for trading as commodities binary options.
How to Trade Commodities Binary Options
In commodities binary options trading, you can profit from rising and falling prices, just the way it is done in the conventional markets. Commodity prices in the binary options market are mostly moved by news that influence the demand and supply of each particular commodity. Each commodity has its own peculiar set of market fundamentals. For this reason, it is suggested that traders pick just the commodities that they can understand and handle, study their fundamentals and focus on trading them. A review of trading activity of a pooled set of traders showed very clearly that attempts at trading all commodities listed on the broker’s platform usually does not work out well.
Check out the binary options commodities asset list of several brokers. See which commodity markets to trade are offered. Usually, the global importance of commodities such as gold, silver, crude oil and copper mean that they are almost always found on the platforms of hundreds of brokers in the market. So ensure that the broker you want to trade with offers these commodities. A few others may be added to the list but they should be considered as accessory assets to trade.
Commodities markets have two trading hours per day, if we use the London time zone as a reference point. This means that there is a break period in between the trading times. These are the times when the commodity assets will be available for trading. Make a note of the trading time of your preferred commodity asset and adjust your daily schedule accordingly.
As has been mentioned earlier, each commodity has its own characteristic fundamentals that influence supply and demand and therefore asset price. For instance,
- Crude oil is subject to OPEC production quotas, crude oil inventories reports, political events in the middle East.
- Copper prices are heavily dependent on industrial data from China, which is the world’s largest copper importer.
- Gold is a safe haven asset and prices are pushed higher during periods of market turmoil and economic uncertainty.
- Silver is a heavily used industrial component in manufacturing of electronics, smartphones and also pharmaceuticals.
Any trader interested in trading binary options commodities must have a solid understanding of the fundamentals for each asset, and also know how to interpret the data for trade execution on the platforms.
A popular market saying is “trigger fundamentally, enter technically”. It is not enough to simply know that a particular fundamental influence will move a commodity asset up or down. You have to know how to enter the trade using solid technical basis. It is even more important in binary options where one pip can decide a trade in profit or loss. Therefore, a low deposit account or a no deposit bonus account must be used to practice how to enter trades on commodity assets. Prices of commodity assets tend to have large swings, so entries must be spot on to avoid the effects of drawdowns.
When you have your no deposit bonus account, or a low deposit account, you should be able to test your strategy as well as your trading robots there. Beware of scams. There are a lot of scam software in the market so you need to test every software you want to use. Some software providers provide a trial period. Use this trial period to put your trading strategies and software in order for prosecution of your trading exercise.
There can be no replacement for study. Study resource materials and read books on how to trade commodities for money. There are not many materials out there on how to trade commodities binary options, therefore you need to combine several resource materials to get the totality of the knowledge package you require to succeed in the market.
Commodities are also correlated with other assets. You need to study commodity market correlations, as they can provide insight into trading opportunities where these are not immediately obvious.
Always go back and review your previous trades, especially the losing ones. Once you are able to detect where a trade went wrong, you can make the necessary corrections and adjustments to make them right in future.
Q: What are the common commodities traded in binary options?
Answer: The commonly traded binary options commodities are crude oil, corn, coffee, wheat, cotton, copper, gold, silver, platinum and palladium.
Q: How much capital do I need to start trading binary options commodities?
Answer: Most binary options brokers will allow you to open accounts with a minimum of $200. However, studies have revealed that you can do more with greater capital. So you should aim to put as much money as you can muster into your trading account. Trading binary options commodities means that you do not need the large capital that commodity traders who trade on the futures exchanges must have in their accounts. You can place trades in binary options commodities with as little as $10.
- I cannot deposit more than $500 in my trading account. Can I still trade binary options commodities?
Answer: Absolutely. Many brokers allow you to set trades with a minimum of $10, which is within risk limits on a $500 account.
Q: How do I choose a commodities binary options broker?
Answer: Check to see that the broker is regulated and licensed. Then look up the asset list to see if the broker offers the commodities you are interested in. If you are satisfied, you can proceed to open an account and trade.
Q: What kind of returns should I expect from trading binary options commodities?
Answer: The payout for most successful trades on binary options commodities is 80% on the average. However, you will lose 100% of your investment in a losing trade. You therefore neeed to maintain a performance rate of 2 wins for every loss to get a profitable return at the end of the month. A disciplined trader with a good system and sufficient capital can expect returns of between 30% and 50% in the long run.
Q: Can I make a living trading binary options commodities?
Answer: It takes a very long time to achieve mastery of the markets. Until you do this, you are better off combining trading with another income generating activity. If you do exceptionally well, you can start to earn a living from trading binary options commodities. Please note that in addition to trading for profit, you can also make money selling trade alerts or managing accounts for others.
Q: Can I day trade binary options commodities?
Answer: The existence of short expiry times within which binary options trades are resolved means that it is possible to day trade binary options commodities. The longer the expiry times you use within a day, the clearer it will be to detect trends and make better, more informed trades.
Q: Must I trade only on my computer?
Answer: You can trade commodities binary options not just on computers but also on smartphones. Ask your broker for the URL of their mobile app on the respective stores.