What are Commodity CFDs?
CFD stands for Contract for Difference.
A CFD is a financial instrument that gives traders exposure to price movements of an underlying asset (such as gold, bitcoin, shares etc.), without
the trader needing to hold the physical underlying asset.
CFDs are available for thousands of assets, covering commodities, cryptocurrencies, local and international stocks, ETFs and more.
Commodity CFDs give traders exposure to the price of commodities without needing to pysically handle commodities. For example, if you buy gold CFDs, you will profit if the price of gold increases, or incur a loss if the price of gold decreases, without ever actually holding gold.
Traders can buy and sell commodity CFDs from reputable CFD exchanges such as Plus500.
Plus500 offers CFDs for several commodities, including gold, crude oil, wheat, platinum and several others.
Problems with Trading Commodities
The physical purchase of commodities requires transport and storage, both of which carry risk and incur costs.
Imagine you want to trade gold. Without CFDs, the most straightforward approach would be to physically purchase gold bullion or other gold items, such as gold coin or jewelry.
Commodities need to be transported, whether it's to a storage location, or to a marketplace for sale. In the example where you are trading gold, you might need to arrange specialized transport at a cost depending on how much you buy. How long are you planning to hold the asset? Transport is time consuming. If you're looking to sell within minutes or hours depending on the price, this might not be possible with the physical asset.
Commodities need suitable storage. For example if you've purchased a large amount of gold, you might need to rent a secure vault for a monthly fee. If you've purchased a small amount of gold, you could save on vault fees by keeping under your mattress or wearing it in the case of jewelry, both of which come with risk of theft or loss.
Advantages of Trading Commodity CFDs
Commodity CFDs avoid storage and transport costs
Since traders in CFDs do not hold the underlying asset, commodity CFDs allow traders to bypass the hassle of physically handling commodities, all the while giving them similar price exposure.
Commodity CFDs offer exposure to the prices of commodities that many traders otherwise wouldn't have.
Commodity CFDs allow for shorting commodity prices
If you think the price of a commodity will fall, you can benefit from this by short selling the commodity's CFD.
Disadvantages of Trading Commodity CFDs
CFDs are not suited for long-term investments. If you wish to invest long term in a commodity, it might be more suitable to hold the physical commodity, or to invest in stocks of companies that deal in the commodity.
Trade Commodity CFDs
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