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Commodity Online Trading – What Is It?
What is commodity online trading? To a new forex trader, the idea of trading commodities and trading currencies at the same time is confusing. If a trader is trading currencies, what do commodities have to do with it?
The answer lies in economics. Commodity online trading is based on a specialized type of fundamental analysis of the forex markets. Recognized by this strategy are the economies of some countries which are heavily dependent on certain imports and exports of raw materials such as oil, precious metals, agricultural products and others that contribute to a country's Gross Domestic Product (GDP). Therefore, the value of individual countries' currencies will be linked to rises and falls in the price of those commodities, traders involved in commodity online trading can profit from following individuals costs.
Many of the smaller economic powers, especially in the developing world, are heavily dependent on the export of one or more raw materials. Nonetheless, most traders involved in commodity online trading would avoid those minor currencies since the political situation is usually unpredictable, liquidity is low and fluctuations can be extreme.
Traders involved in commodity online trading would therefore opt for the three key commodity currencies in the world specifically the Canadian, Australian and New Zealand dollars. The Canadian dollar (CAD) is probably the most popular commodity currency for traders involved in commodity online trading. Since Canada is the world's second largest exporter of oil, the value of CAD will definitely be affected once there is a significant change in oil prices. Since the USA is a big importer of oil, the USD/CAD pair is expected to be affected strongly by changes in oil prices. Gold is the main commodity export of Australia. You could make a study of gold prices and their effect on Australian dollar (AUD) currency pairs but at the very least, if you're involved in any commodity online trading that includes AUD, you should keep an eye on gold prices. New Zealand's commodity exports are more varied so if you trade a New Zealand dollar (NZD) pair, you will need to observe the general commodity price index (CRB).
It can be crucial to recognize that even where the link is quite strong, currency exchange values will not always respond to a change in commodity rates. The forex market ignores normal fluctuations; however, a shift in USD/CAD is expected if there are predicted or announced changes in oil prices. The shift in USD/CAD does not happen right away; therefore,a trader involved in commodity online trading can get ready while the trend is just forming.
It is strongly advised not to focus only on commodity values since other factors may also affect prices. Nevertheless, for particular currency exchange pairs it can certainly pay well to comprehend commodity online trading. It truly is very crucial to keep your eyes open for any economic news affecting these nations and it would be wise to check out the economic news calendar at Foreign currency Factory.
Tags: Commodities, commodity price, Gross domestic product, trading commodities, Commodity forex online trading, General commodity price index