Fundamental Analysis For Commodity Trading
Doing fundamental analysis for the commodity market is a little different. It is not the same as fundamental analysis of the stock market and the forex market. As a commodity trader, you need some specific fundamentals that are unique to commodities.
A trader who trades commodities in different markets cannot do the same fundamental analysis as a forex trader. But the question is how to do fundamental analysis for commodity market? If you are also looking for a solution or a way to perform fundamental analysis for different commodities. Then you have come to the right place. Because here we will tell you how to do it in simple steps.
Fundamental Analysis For commodities
We all know that fundamental analysis is different from technical analysis. In fundamental analysis, we use different metrics based on the current time frame. When we do fundamental analysis for stocks, we use it to track different factors.
These factors relate to the stock and the company that is being updated in the market. The same is true for the foreign exchange market, where we track countries. But what should we track when we are in a commodity market? How do commodities fluctuate? All these questions will be answered in this post.
Understand How Commodity Market Works?
Before you get into the main part of this post on how to do fundamental analysis for commodities. You need to know the commodity market and how it works. However, it is not possible to give you complete information about the fundamentals of the commodities market, but we can give you an overview.
There are different types of commodities that are traded in this online trading arena. If you understand forex trading and stock trading, then you can understand the commodities market as well. If forex trading is an easy thing for you, then you can also trade commodities. Below are a few things you need to know about the commodities market.
What Is Commodity Trading?
Commodities like metals, petroleum, grains, energy are traded through an online trading platform. You can learn how to trade commodities with some trading courses. This market is not so risky as compared to currency trading. But it is also affected by volatility and liquidity.
Two Major Factors Impacting Commodities
To understand how a commodity market trading account works, you need to know the two main factors. These factors always affect the commodity market during live trading and even when the market is closed.
These two basic factors are demand and supply. These factors are always present whether it is the currency market or the online stock market.
How Demand & Supply Impact The Commodity Market?
Supply and demand fluctuate by the minute. There is no stability and it makes using a trading strategy more complex. From private forex traders to central banks as traders, demand and supply always affect the commodity market. Whenever demand goes up, prices go up.
On the other hand, when supply goes up and demand goes down, prices go down on various trading platforms. Most commodity traders buy or sell commodities based on demand and supply. An active trader always uses demand and supply as the main factors in valuing commodities.
Using Fundamentals For Particular Commodities
Now let's talk about the fundamentals for specific commodities. There are no similar fundamentals for all commodities. There are different commodities and different types of fundamentals associated with them. That is why forex charts, foreign exchange rates and stock charts are different from commodity charts.
The main types of commodities and their fundamentals are described below.
#1. Soft Commodities
Soft commodities are also known as agricultural products or agricultural commodities. These commodities include wheat, oats, soybeans, corn, sugar, beans and more. All these agricultural commodities come under soft commodities. These commodities work more through nature and less through artificial factors.
Fundamentals Of Soft Commodities
When you trade an agricultural commodity, you have a different set of aspects. Natural calamities, pandemic like situations, import and export taxes, are some of them. Apart from that, there is always demand and supply as the main factors.
#2. Industrial Commodities
Industrial commodities are different from soft commodities. Metals like gold, silver, copper and more are traded. If you are creating strategies for industrial commodities, then you need to find their relevant fundamentals. A trading plan for metals trading should include industrial policies, financial policies, etc.
#3. Energy Commodities
Energy commodities are oil production, solar energy, petroleum and more. If you are willing to trade energy and it is then you should have the global market to follow. You also need to keep an eye on the country that produces such energies. All these trading signals will lead you to profitable trading.
#4. Livestock Commodities
Livestock commodities are the same as soft commodities, but they have a trade market where live foods are traded. Eggs, meat, pork, cattle and more are traded in this trading system. Fundamentals for these commodities are natural disasters, production costs, health of livestock, etc.
Demand & Supply Are Necessary Fundamentals
Apart from the above four fundamentals, there are two basic but necessary aspects. These fundamentals are demand and supply. These two factors apply to all financial instruments.
Finding The Trends
After you have selected the fundamentals for your commodity, you need to find the trend. You need to track all the events that occur for that fundamental. To do this, make an economic calendar. In this area of automated trading or algorithmic trading, it is very easy to use the software.
Tracking Environmental Indicators
You need to track environmental indicators when using commodities to make a profit in a trading market
Tracking The Market Charts
Keep an eye on the market charts. There are various charting tools that make it easier for beginners. You can also follow the investment tips of an experienced trader. Taking a look at past performance and then comparing it with current chart patterns makes it easy for beginners.
Using Analyzing Tools
Various trading tools are provided by a stock broker. Also, there are many trading services or trading tools that help you to analyze the trends. The market commentary also helps the traders to grasp the trend. Most of the buyers and sellers use advanced tools for trading.
Tracking Correlation Of Markets
When using fundamental analysis for commodities, you must include correlation. Always remember that all markets are correlated.
If something happens in one market, it means something will happen in the other. So always keep an eye on the other correlated markets as well.
Summary - Fundamental Analysis For Commodity Trading
The commodity market is different from other markets like the stock market and the currency market. All these markets are different when we compare them at the micro level. But there are also some common things. You need to track fundamentals when you do fundamental analysis for any market.
But the fundamentals are different for all the markets. There are different fundamentals for the commodity market. But you have to use all these fundamentals with care.
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