While forex and commodities are two different synthetic markets, trading either one involves a similar principle – betting on the future price direction of a certain asset. Knowing the key differences between these two markets is not really necessary. However, doing so allows you to identify tradable opportunities across both currency pairs and commodities. Over time, this allows you to participate in more tradable opportunities while effectively distributing portfolio risk. Here’s forex trading vs commodities see exactly what you could be missing out.
Factors Contributing to Commodity Prices
Commodities imply anything found organically in the environment or is planted and harvested. Several factors affect the price of certain commodities, such as growing season, increased mining areas, natural calamities, and labor strikes. Nature tends to play a more important role in commodities than it does in currencies.
The ever-changing seasonal conditions and weather patterns every year can impact commodity prices. As mentioned above, if nature does not affect the market, it could be human-induced factors including strikes by miners and newly discovered deposits of the commodity.
Factors Contributing to Forex Prices
When looking at forex trading vs commodities see exactly what you could be missing out, most contributing factors are categorized under macroeconomics and macroeconomics. Currency prices move accordingly with their respective economies. If China prints out weak industrial numbers, the Yuan free falls. If the US Federal Reserve sounds hawkish in their interest rate decision, the US dollar gains value.
How to Trade Either Markets
Now that you’ve identified the factors moving these markets, constructing trade ideas should be your next step. Ideally, you’d want to split your available capital between commodities and currencies to distribute risk and to capitalize on short-term price movements on both markets. Either go for 50/50 or split a larger capital portion in the asset you have more experience trading with.
What to Remember
Whichever market you choose to trade with, always remember to manage risk, especially with the forex market. Commodity prices tend to be more stable than forex unless severe weather conditions cause significant imbalances in supply and demand of a particular commodity like wheat or corn.
Risk management coupled with a solid trading system can conquer both markets. It takes time to build self-discipline and an even longer time to find a strategy that works for you. Nonetheless, work on these two aspects if you want to make forex and commodity trading your full-time job.