What are Commodities and How to Trade Commodities with MT5?
10 MIN READ
Team BitDelta Pro • 18 Nov 2024
CommoditiesHow ToMetaTrader 5
10 MIN READTeam BitDelta Pro • 18 Nov 2024
Commodities are among the most traded assets on the leading multi-asset trading platform, MetaTrader 5 or MT5. Our latest blog offers a comprehensive guide on commodity trading and how you can leverage the advantages of MT5 to trade the asset class.
Key Takeaways
Commodity trading involves the buying and selling of raw resources such as agricultural products, natural gas, metals, livestock, etc.
The MT5 platform offers several asset segments, including commodities, easily traded by novice and experienced traders.
Commodity trading has its benefits and risks. In this blog, you will learn how to maximise potential gains and minimise risks.
Commodity trading involves the buying and selling of raw materials such as agricultural products, metals, cattle, etc. Simply put, commodity trading deals with the primary sector of raw materials rather than the secondary sector involving manufactured goods. Commodity markets are one of the oldest in the world that date back centuries yet remain a crucial component of the modern economy. If you’re looking to get into commodities trading, the most convenient and reliable trading platform is MetaTrader 5 or MT5.
Commodities are among the most traded assets on MT5, given how the platform has made the trading of gold, crude oil, rice, etc., so accessible to common traders. In this blog, we will also learn about commodity trading via MT5, its chief benefits and risks, and the latest MT5 features in detail.
What are Commodities?
In the trading world, a commodity is a raw economic resource used to manufacture consumer goods and services. Commodities such as metals, oil, vegetables, livestock, etc., are available in or extracted from nature. Thus, we can conclude that a commodity belongs to the primary sector.
Types of Commodities
Primarily, there are two categories: Hard and Soft commodities. These are further categorised into different kinds according to their physical nature. Let us understand each type of commodity in detail:
1) Hard Commodities: Hard commodities are raw resources mined or extracted from nature. These commodities have a long shelf life and are closely tied to industrial demand and global economic conditions. Hard commodities can be further categorised into:
Metals: Gold, platinum, silver, and copper are the most popular commodities traded globally. Traders rely on these precious metals for their inherent resistance to market volatility. Precious metals like gold, silver, platinum, etc., are used to make jewellery and are crucial for hedging against inflation or currency depreciation. Due to the emergence of the global technology industry, there is also a rising demand for rare earth metals such as gallium, tantalum, lithium, cobalt, dysprosium, europium, gadolinium, and holmium. These metals are used to manufacture electronic products such as semiconductors, LEDs, speakers, electric vehicle motors, batteries, and smartphones. Thanks to a vibrant technology industry, such metals are also gaining popularity in commodity trading.
Energy: Resources such as crude oil, gasoline, and natural gas are the second type of hard commodities frequently traded in the market and are closely tied to the power, manufacturing, and transport industries. The demand for energy commodities has only risen over the last few decades even as the sources seem to be drying up. Alternative energy sources such as solar and wind are also emerging for pollution control and sustainable development. Energy resources are highly susceptible to geopolitical tensions and subsequent logistical issues.
2) Soft commodities: Soft Commodities are grown or farmed resources highly dependent on weather conditions, soil type, etc. These commodities are perishable and have a short shelf life. They are closely tied to consumer demand and local weather conditions.
Soft commodities can be further categorised into:
Agricultural Produce: Agricultural produce such as grains, lentils, soybeans, cocoa, tea leaves, cotton, etc., are among the most traded soft commodities. Humanity cannot survive without food, which makes the agricultural commodity market one of the earliest in the world. Genetic modification, crop choice changes, global supply chain shifts, climate change, sustainable agriculture, and government policies are the fundamental changes driving the current changes in the trading of agricultural commodities.
Livestock and Meat: Livestock and meat are a significant part of soft commodities. Livestock refers to animals, such as cows, buffaloes, pigs, fowl, etc., raised on farms to procure milk, eggs, meat, and other resources. Such livestock commodities are tied to the milk, dairy, meat, leather, and wool industries. Meat is a rich source of protein, making livestock a crucial part of the global food chain. The rearing, slaughtering, preservation, and distribution of livestock form the basic cycle of the meat industry, employing a large international workforce. Along with agricultural commodities, livestock and meat commodity markets are among the earliest markets in the world.
Why Trade Commodities?
Commodities are among the most popular asset segments being traded in the market. In fact, traders betting on volatility hoping for outsized returns frequently turn to the commodity market. The main benefits of trading commodities are:
1) Portfolio Diversification: If a trader diversifies their investment portfolio to include commodities, they can expect a high return on investment (ROI) even during an economic downturn, when the rest of the assets reflect low or negative ROI. However, commodities can also generate negative ROI during a volatile market period.
2) Outsized Returns: Most commodities reflect high price volatility due to sudden changes in supply and demand dynamics, geopolitical conditions, etc. Therefore, such commodities often offer outsized returns due to high price volatility. They are the favourite financial instruments of speculators who take positions in the market for a few weeks or months to profit from the volatility in the commodity market.
3) High Liquidity: The commodity market is highly liquid globally and offers a low entry barrier to the trading community. The high liquidity of the commodity market makes it easy for traders to enter and exit their positions quickly.
4) Hedging and Netting: The appreciation in the prices of precious metal and energy commodities tends to rise above the rising inflation rate. So, long-term investments in such commodities offer opportunities to hedge against rising inflation, as their prices continuously increase over the years and their demand continues to rise or remains stable. Netting is another risk-management strategy that involves opening a trade in the opposite trend to the one of an already existing position.
Limitations and Risks of Commodity Trading
1) Volatility: Seasonal supply and demand dynamics, drop in production capacities, natural disasters, and geopolitical tensions are among the slew of factors behind commodities’ sudden volatile price movements. While an uptick benefits the traders, a violent downtick leads to traders losing nearly all funds in the commodity market.
2) Speculative: The commodity market attracts many speculators who look for short-term benefits and take positions in the market for short periods. The huge presence of speculators, in turn, tends to turn commodities into highly speculative assets.
3) Industry-Specific Concentration: Though commodity trading is an opportunity for portfolio diversification, commodities are tied to only a few industries. Therefore, commodity trading tends to concentrate your funds in those specific industries. We recommend that you don’t put all your eggs in one basket. Instead of relying only on commodities, diversify your investments by trading stocks, forex, etc.
4) Ethical Concerns: Trading commodities has few ethical concerns – industries often overlook labourers’ well-being, environmental sustainability, etc. Although there are laws to uphold labour rights and sustainable development, they are not strictly implemented due to the pressure of the industry lobby. Tackling such ethical concerns requires keeping informed with the latest industry trends and only trading ethically sourced commodities.
Getting Started with Commodity Trading on MT5
You can trade all the leading commodities on MetaTrader 5 (MT5), an all-in-one trading platform offered by MetaQuotes Software Corporation. You can trade gold, crude oil, livestock, cereals, and more. To begin commodity trading on MetaTrader 5, you need an MT5 account first.
How to Set Up Your MT5 Account?
You can access MT5 application via your broker, BitDelta Pro.
Download and install the MT5 application on your computer or mobile device.
Once the installation is complete, log in to the MT5 platform using your BitDelta Pro username and password or create a new account.
You can either open a demo account or a real account on MT5.
A demo account is the best option for novices, as it allows them to practise trading in the market using virtual money, like a game.
A real account lets you trade in the actual markets with real money. This is the best option for experienced traders.
How to Add Commodities to Your Market Watch List?
Navigate to the Market Watch window on the MT5 platform.
Right-click within the window and select Symbols or Show All.
All the available assets will be displayed.
Now, you can search for specific assets such as Gold or Crude Oil under the Commodities category.
Double-click on the commodities you are interested in tracking, and they will be added to your watch list.
How to View Contract Specifications on Commodities on MT5?
Before trading commodities on MT5, you should certainly view their contract specifications.
Navigate to the Market Watch on the MT5 platform.
Right-click on your preferred commodity within the window.
Select Specification from the pop-up list.
A pop-up window will display the selected commodity’s contract specifications.
The contract specifications include leverage, bid-ask spread, and volume.
Key Features of MT5 for Commodity Trading
MT5 is an advanced trading platform with several customisable built-in features well-suited for commodity trading.
The platform has 38 built-in technical indicators, 39 graphical indicators, and 44 charting tools for a deeper market analysis.
Moving Average (MA), Relative Strength Index (RSI), Bollinger Bands, etc., are among the most popular indicators.
MT5 has 21 timeframes, from one minute to monthly timeframe, to observe a wider range of market perspectives.
MT5 also offers numerous custom indicators and tools, free or paid, for an advanced analysis of the trends.
Expert Advisors (EAs) often use advanced Exponential Moving Average (EMA) data to find out the best trades for you.
You can create or obtain ready-made algorithms to perform Automated Trading of commodities.
MT5 also offers the Copy Trading feature access via BitDelta Pro. Thanks to this feature, you can automatically copy the exact trades of Master Traders and trade commodities with minimised risks.
Depth of market (DOM) is another prominent feature on the MT5 platform. It displays bids and asks for a particular commodity at the best real-time prices (closest to the market).
The advanced DOM feature helps you better understand the commodity’s demand and supply trends.
You can place the following types of orders on MT5:
Market Order: Trade at the given market price at the time of placing the order. This is the most conventional type of order executed at the current market price.
Pending Orders
Buy Limit Order: Buy at an Ask price equal to or less than the price specified in the order. The trader expects the price to rise once it has dropped to a certain point.
Buy Stop Order: Buy at an Ask price equal to or more than the price specified in the order. The trader expects the price to rise once it has dropped to a certain point.
Sell Limit Order: Sell at a Bid price equal to or more than the price specified in the order. The trader expects the price to drop once it has risen to a certain point.
Sell Stop Order: Sell at a Bid price equal to or less than the price specified in the order. The trader expects the price to drop once it has risen to a certain point.
The two orders below are the additional order types introduced by MT5 which were not available on MT4:
Buy Stop-Limit Order: It is a combination of Buy Limit and Buy Stop orders that is new to MT5. Once the Ask price of a commodity hits the Stop point specified in the Price field, a Buy Limit order will be placed at a price specified in the Stop-Limit Price field.
Sell Stop-Limit Order: It is a combination of Sell Limit and Sell-Stop orders that is also new to MT5. Once the Bid price of a commodity hits the Stop point specified in the Price field, a Sell Limit order will be placed at a price specified in the Stop-Limit Price field.
Other Order Types
Stop-Loss Order: If the price of a commodity moves in an unprofitable territory, this order is useful for minimising your losses. The Stop-Loss order is placed with a market or pending order only as it automatically closes your position on the asset.
Take-Profit Order: If the price of a commodity suddenly moves in a profitable territory, this order is useful for maximising your profits. The Take-Profit order is also placed with a market or pending order only.
How to Place a Commodity Trade on MetaTrader 5?
Placing a commodity trade on the MT5 platform is very simple, involving only a few simple steps. First, deposit funds into your BitDelta Pro account linked to the MT5 platform. Here is how you can do it:
Log in to your BitDelta Pro account.
Choose a deposit method.
Enter the amount and complete the transaction.
You can use these funds to trade commodities on the MT5 platform.
Now, it’s time to place your first commodity trade on MT5. Choose the commodity you want to trade from the Markets window on the MT5 platform.
Right-click on the chart and choose New Order.
Specify the trade volume, Stop Loss, and Take Profit order(s).
Choose either of the two options, Buy or Sell.
Choose the amount to trade and confirm the order.
The order will be displayed in the Terminal window in the Trade section.
You can manage your trades from the Trade section and modify your open commodity positions as per the evolving market trends.
Trading Strategies for Commodities on MT5
Whether you are a novice or an experienced trader, you should be well-versed in the basic commodity trading strategies on MT5. Let’s take a step-by-step approach to learn about the various aspects of commodity trading strategies.
Fundamental Analysis
Fundamental analysis involves the constant tracking of various economic and industrial indicators that impact the prices of commodities. Annual company reports, updates about mergers and acquisitions, emerging geopolitical circumstances, and new laws or sanctions are among the factors you need to consider regarding commodities. MT5’s features help you conduct the fundamental analysis of different commodities on its platform itself.
News: Navigate to the News tab on the Toolbox window. To read a news piece, double-click on its title.
Economic Calendar: A feature exclusive to MT5, you can follow macroeconomic indicators from the world’s largest economies on the Economic Calendar. Navigate to the Calendar tab on the Toolbox window to view these details.
Technical Analysis
Technical analysis helps you observe the current and future trends regarding different commodities. Thanks to technical analysis, you can predict price movements, specify support or resistance levels, and forecast the future of a commodity to some extent.
Technical Indicators: You can use 38 technical indicators on MT5, such as Moving Average (MA), Relative Strength Index (RSI), Bollinger Bands, etc., to analyse trends regarding a commodity. Customise the candlesticks and bars as per your requirements and you’ll be able to predict trends.
Analytical Objects: You can use 44 analytical objects on MT5, such as Gann, Fibonacci and Elliott tools, geometric shapes, etc., to analyse and predict trends regarding a commodity.
Common Tips
A novice trader should first start with a Demo account so that they can practise with virtual money.
A trader should learn about different indicators and features to analyse and predict trends to trade commodities profitably.
A trader should always use Stop-Loss orders to preserve funds while trading commodities.
Risk Management in Commodity Trading
Commodity trading is highly risky and speculative. It concentrates funds within a few industries, raising a few ethical concerns too. It is recommended to trade commodities and other assets such as stocks, indices, CFDs, etc., to diversify investment portfolios and contain trading risks.
A few risk-management practices you can implement while trading commodities:
Place Orders Smartly: Place Stop-Loss and Take-Profit orders while trading commodities to minimise losses and maximise profits.
Capital Allotment: Decide how much capital you must allocate to a certain trade after a comprehensive fundamental and technical analysis. This way, you can avoid huge risks common in trading commodities.
Monitor Risks: Monitor MT5’s tools, statistics, margin, and open trades to determine when you should exit your positions to minimise potential losses.
Using the MetaTrader 5 Mobile for Commodity Trading
Trade commodities conveniently using the MT5 app on your mobile phone. Whether you are always on the move or simply want to stay updated with the commodity market, the MT5 mobile app is your go-to solution.
On Android smartphones, you can download the MT5 app from the Google Play Store.
On Apple smartphones, you can download the MT5 app from the iOS App Store.
The MT5 mobile app has many features similar to the desktop version:
Real-time updates
Indicators, charts, and tools along with different time frames
Order and track facility
Mobile notifications on the latest market trends
Trading while you are on the go
Benefits of Trading Commodities with MT5
Trading commodities with MT5 offers several benefits:
Easy and Simple User Interface (UI): The MT5 platform is accessible even to novice traders because of its user-friendly UI. It allows you to customise the font sizes, colours, and other settings as per your requirements.
Multi-Asset Trading:While MT4 is primarily a forex trading platform, MT5 offers you access to nearly all the assets such as commodities, stocks, indices, etc. This facilitates portfolio diversification for risk management on a single platform.
Advanced Tools: Access up to 38 technical indicators, 39 graphical indicators, 44 charting tools, and 21 timeframes for a deeper analysis of the commodity market to maximise potential gains..
Backtesting and Optimisation: You can use the strategy tester tool on MT5 to simulate a trading scenario, access the practicality of your trading strategy, and optimise it for the best results in the live commodities market. MT5’s strategy tester supports multi-threaded backtests with an advanced optimisation of trading bots. Therefore, you can run a backtest on multiple commodities at the same time and optimise them for the best results.
Risk Management: You can engage in hedging and netting commodities for risk management that is inherent to trading. Orders such as Buy Stop-Limit and Sell Stop-Limits are also common strategies that commodity traders can implement to minimise losses.
How to Get Started with MT5 on BitDelta Pro?
Download the MT5 app from the BitDelta Pro website and install it on your computer or smartphone.
Log in with your BitDelta Pro account or create a new one to get started.
Begin placing orders for commodities from the comfort of your home or on the go.
Bottom Line
Trading commodities offers outsized benefits and ensures portfolio diversification and risk management. Being a high liquidity market, it is very easy to enter and exit positions in commodities. MetaTrader 5 (MT5) is a multi-asset trading platform and the ideal application for trading commodities. Users can trade both hard and soft commodities such as gold, crude oil, cereals, and livestock.
Open your account with BitDelta Pro and start trading commodities via MT5. BitDelta Pro is an all-in-one trading exchange, integrated with MT5, that boasts more than 900K users from over 130 countries. Unleash the power of commodity trading via MT5 with BitDelta Pro.
FAQs
A commodity is a raw economic resource that is available in or extracted from nature. It is used to manufacture consumer goods.
There are two types of commodities:
1) Hard Commodities
Hard commodities are raw resources that must be mined or extracted from nature and have a long shelf life.
There are two types of hard commodities:
Metals
Energy
2) Soft Commodities
Soft commodities are raw resources that are grown or farmed and have a shorter shelf life due to their perishable nature.
There are two types of soft commodities:
Agricultural produce
Livestock and meat
Commodity trading is one of the oldest financial activities in the world that involves the buying and selling of raw materials such as agricultural products, metals, cattle, crude oil, etc.
The chief benefits of commodity trading are:
Portfolio diversification
Outsized returns
High liquidity
Hedging and netting
The main risks of commodity trading are:
Price volatility
Highly speculative
Industry-specific concentration
Ethical concerns
MetaTrader 5, or MT5, is an all-in-one trading platform that hosts an array of asset segments such as commodities, stocks, forex, indices, etc.
Commodities are among the most traded assets on the MT5 platform because:
MT5 provides 38 technical indicators, 39 graphical indicators, 44 charting tools, and 21 timeframes for a deep analysis of the commodity market trends.
Several types of orders can be placed on MT5, many of which are ideal instruments for risk management.
In-experienced traders can utilise the copy trading feature on MT5 to trade commodities with minimised risks.
Several features on the MT5 platform make it an ideal platform for commodity trading.
DISCLAIMER
This communication is for informational and educational purposes only and should not be construed as financial, investment, or legal advice. BitDelta Pro does not guarantee the accuracy, completeness, or timeliness of the information provided. Trading in traditional securities (such as forex currency pairs, stocks, bonds, and commodities) carries inherent risks, including potential loss of principal. Users are encouraged to carefully evaluate their financial objectives, conduct their own research, and seek independent financial advice before making any trading decisions. BitDelta Pro is not liable for any losses or damages resulting from actions taken in response to this communication.
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