Investing offers unlimited opportunities with different types of markets appealing to different types of traders. Whether you prefer scalping or long-term positions, low risk or high volatility, there’s something for everyone if you know where to look.
In general, trading can be included in one of the top jobs ever, but it is undoubtedly not for everyone. Forex and commodity trading are two markets that appeal to many, and they share some similarities, such as being compatible for trading on a futures exchange. However, there are also some fundamental differences – but do you know which type of trading you’re best suited to?
What Are Forex and Commodities?
If you’ve only ever traded in company stocks and shares, you might not be familiar with the forex and commodities markets.
Forex is concerned with the value of different currencies and how they move against each other. Prices are always quoted in pairs, such as trading in US dollars and Euros. Forex, also known as fx, is particularly volatile, and the markets can swing sharply in response to global events.
Commodities are also a high-risk market and are concerned with the price of certain types of valuable goods. Examples of this might include beef, grain, gold, natural gas, and oil. There are four primary categories in the commodities market – agricultural, livestock and meat, metal, and energy. Investors can diversify into the particular type of commodity they want to trade.
Now that you know what the two types of markets are, we can take a look at the differences and why they’re chosen for trading.
All of the leading financial markets are regulated, but the degree of regulation can vary significantly. Commodities are much more tightly regulated than forex, so if you prefer trading to be tightly monitored, you may be better sticking with the former.
The difficulty with forex is that it’s the largest and most liquid trading market globally, which operates 24/7. There is no single centralized body that oversees forex, and different countries take a very different approach to currency movement and trading.
This doesn’t mean that forex is unregulated; there are still standards that must be adhered to. But compared to other types of trading, which operate under strict scrutiny, forex can feel much looser.
Leverage is always a controversial subject, and it’s something that can make new traders quite nervous. And rightly so, because if leverage isn’t handled correctly, it can wipe your entire account out almost instantly.
Both the commodities and forex markets include leverage, but there is far more in the latter. You don’t need to pass rigorous checks to access leverage within the forex, and a relatively small balance will give you the chance to control thousands of pounds in the market.
Leverage can be either fantastic or absolutely catastrophic, so it’s wise to proceed with caution if you’re not an experienced trader.
One of the reasons that people gravitate to a particular market is because they have pre-existing knowledge. And if that’s the case, it’s a smart move as the more information you have about how a market works, the better.
Some factors prompt movement in both the forex and commodities markets, but overall, they respond to different triggers. As commodities are a more tangible entity that responds to supply and demand in a more fundamental way, some traders feel better equipped to understand the intricacies of the market.
Best of Both Worlds?
There is a potential trade-off if you can see the benefits of entering both forex and the commodities markets. Some currencies are so closely tied to the performance of a certain commodity that they offer the best of both worlds.
Examples include the Canadian dollar (tied to the price of oil), the New Zealand dollar (whole milk powder), and the Australian dollar (spot gold).