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Fundamental Analysis For Commodity Trading

Fri Mar 26 2021 06:43
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Conducting fundamental analysis for the commodity market is a little different. It is not the same as the fundamental analysis of the stock market and the forex market. Being a commodity trader you need some particular fundamentals meant for commodities only. 

A trader who trades commodities in different markets cannot conduct fundamental analysis the same as a forex trader. But the question is how to conduct fundamental analysis for the commodity market? If you are also looking for a solution or a way to conduct fundamental analysis for various commodities. Then here you are in the right place. Because here we will let you know how you can do it in simple steps. 

Fundamental Analysis For commodities 

We all know that fundamental analysis is different from technical analysis. In the fundamental analysis, we use various metrics related to the current time frame. When we conduct fundamental analysis for stocks, we use it to track various factors. 

These factors cover the stock and its company updated going in the market. The same thing applies to the foreign exchange market, where we track countries. But what to track when we are in a commodity market? How commodities fluctuate? All these questions will be answered in this post. 

Understand How Commodity Market Works? 

Before you jump into the main section of this post about conducting fundamental analysis for commodities. You need to know the commodity market and how it works. But it is not possible to provide you with complete information on the basics of the commodity market, but we can give you an overview. 

Commodities are of different types and they are traded in this online trading arena. If you understand forex trading and stock trading, then you may understand the commodity market too. If trading forex is an easy thing for you, then you can trade commodities too. Following are a few things that you need to know about the commodity market. 

What Is Commodity Trading? 

Commodities like metals, petroleum, crops, energy are traded through an online trading platform. You can learn how to trade commodities with some trading courses. This market is not that risky as compared to currency trading. But, it is also affected by volatility and liquidity. 

Two Major Factors Impacting Commodities 

To understand how a trading account in the commodity market works, you need to know the two major factors. These factors always impact the commodity market during live trading and even during the market being closed. 

These basic two factors are demand and supply. These factors are always there, no matter if you are talking about the currency-market or online stock market. 

How Demand & Supply Impact The Commodity Market? 

Demand and supply fluctuate every minute. There is no stability and it makes a trading strategy more complex to apply. From retail forex trading to central banks as traders, demand and supply always impact the commodity market. Whenever there is a rise in demand the prices go high. 

On the other side, if supply is rising and there is a fallback in demand, then 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 major factors while evaluating commodities. 

Using Fundamentals For Particular Commodities 

Now let's talk about the fundamentals for particular commodities. There are no similar fundamentals for all the commodities. There are different commodities and different types of fundamentals related to them. 

That is why forex charts, forex rates and stock charts are different from commodity charts. Following are major types of commodities and their fundamentals. 

#1. Soft Commodities 

Soft commodities are also known as agricultural products or agricultural commodities. These commodities include wheat, oats, soybean, corn, sugar, beans, more. All these agricultural assets come under soft commodities. These commodities have an effect more by nature and less by artificial factors. 

Fundamentals Of Soft Commodities 

If you are trading an agricultural commodity then you will have a different set of aspects. Natural disasters, pandemics like situations, import and export taxes, are some of them. Other than these there are always demand and supply as the major factors. 

#2. Industrial Commodities 

Industrial commodities are different from soft commodities. Metals like Gold, Silver, Copper, and more are used to be traded. If you make strategies for industrial commodities then you need to find its relevant fundamentals. A trading plan for metal trading should have industrial policies, financial policies, etc. 

#3. Energy Commodities 

Energy commodities are oil production, solar energy, petroleum, more. If you are willing to trade in energy and it's then you should have to track the global market. Also, you need to keep an eye on the country which produces such energies. All these trading signals will lead you towards profitable trading. 

#4. Livestock Commodities 

Livestock commodities are the same as soft commodities but they have a trading market where live food is traded. Egg, meat, pork, cattle, & more are traded in this trading system. Fundamentals for these commodities are natural disasters, production costs, livestock health, etc. 

Demand & Supply Are Necessary Fundamentals 

Other than all 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 choosing the fundamentals for your commodity, you need to find the trend. You have to track all the events that occur for that fundamental. Make an economic calendar to do this. In this arena of automated trading or algorithmic trading, it is very easy to use the software. 

Tracking Environmental Indicators 

You need to track environmental indicators when you are using commodities to make a profit in a trading market. 

Tracking The Market Charts 

Keep an eye on the market charting. There are various charting tools to make it easier for beginners. You can follow the investment advice of an expert trader too. Having a look at the past performance and then comparing it with the present chart patterns also makes it easy for novice traders. 

Using Analyzing Tools 

Various trading tools are provided by an exchange broker. Also, there are many trading services or trading tools to help you analyze the trends. The market commentary also helps traders to catch the trend. Most of the buyers and sellers use advanced tools for trading. 

Tracking Correlation Of Markets 

When you use fundamental analysis for commodity, you must have to include the correlation. Always keep in mind that all the markets are correlated. 

If something happens in a market, it means something is going to happen in the other one. So always keep an eye on the other correlated markets too. 

Summary - Fundamental Analysis For Commodity Trading 

The commodity market is different from other markets such as the stock & currency market. All these markets are different if we compare them at the micro-level. But there are some common things too. 

You need to track the fundamentals when you are conducting fundamental analysis for any market. But, fundamentals are different for all the markets. For the commodity market, there are different fundamentals. But you need to use all these fundamentals with care. 
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