The analysis plays a major role in stock market investment. Learn how to make your own technical and fundamental analysis with our explanations.
In addition to equities and other currencies, the assets available for investment today include commodities such as precious metals, energy commodities and agricultural commodities. In this category of our site, you will find the essential information for this type of investment with a presentation of this market and its assets and the elements to be taken into account when analysing its price.
There are two types of major players in the commodities market:
For the past few decades, most of the commodities traded on this market have been traded through derivatives such as forwards, futures, options, warrants or swaps. Transactions are carried out either on organised markets or on the OTC market, also known as the "over-the-counter market".
Organised markets are the stock and futures markets. Transactions are therefore standardised on various criteria such as quantity, quality or maturity for derivatives. A clearing house responsible for checking the solvency of buyers and sellers with margin calls prevents the risk of counterparty default on these markets.
The over-the-counter market, on the other hand, is a market in which transactions are concluded directly between buyers and sellers, without outside intervention. There is therefore no standardisation of transactions, but this market offers greater flexibility to the various players.
Virtually all commodities traded on the financial markets can be the subject of investments or placements. But to find out more, here are the details of the assets most often found on this market:
Auction transactions are virtually non-existent on the commodities market, which is now almost entirely dematerialised and electronic.
The majority of trading is now carried out through the CME group, which includes the CBOT or Chicago Board Of Trade, the NYMEX or New York Mercantile Exchange and the COMEX or New York Commodity Exchange.
It is the largest futures exchange offering the widest choice of commodity contracts.
But there are also two other markets on which commodities are listed, albeit on a smaller scale. These are the LME or London Metal Exchange and the ICE or Intercontinental Exchange, formerly the NYSE.
Commodity trading, once the preserve of institutional investors, is now of interest to many individual investors. But before engaging in this type of speculation, it is of course essential to have sufficient knowledge and experience of stock market investment in general.
Investors who choose to trade commodities may do so for different reasons depending on the strategy they choose. For example, some investors will prefer to take long-term positions on certain assets considered as safe havens, such as gold for example, and with the aim of possibly hedging other positions on other types of assets.
Still others, more seasoned, will use the high volatility of some of these assets to speculate with a shorter term strategy.
Let's first look at the opening hours of the financial markets on which the main commodities are listed. Indeed, it is during these hours that prices will be most volatile, as many investors will be connected and will take positions. Here are the market trading hours:
Note that these markets are open Monday to Friday during these hours, but are closed on Sundays.
The opening hours of the markets we have just mentioned are for information purposes only as you can trade continuously, i.e. 7 days a week and 24 hours a day on these commodities. Indeed, even if the markets are closed on Sundays or during the few hours concerned, the trading platforms allow you to take positions on these assets.
It should be noted, however, that trading during the closing hours of the commodity markets requires more knowledge and experience as it can also be more risky.
As we have quickly explained above, commodities are highly volatile assets. Indeed, they are particularly reactive to various announcement effects, to the publication of certain indicators and events or to psychological impacts on the markets.
While fundamental analysis will make it possible to analyse the probable effects of a publication on the price of an asset, technical analysis will make it possible to study the strength of a trend, the volatility of a market and to deduce the most probable scenarios in view of what has happened in the past. It is therefore really important to master this type of analysis and to be able to study historical stock market graphs for commodities.
Innovative stock market charts that you can find online, on a trading platform or on a specialised site, allow you to customise displays and perform complex technical analysis. In particular, it makes sense to use and display several indicators simultaneously on these charts. These may include the most common trend and volatility indicators such as Bollinger Bands, MACD or moving averages as well as support and resistance levels and pivot points. These latter technical thresholds can be the starting point of an upward or downward trend, the signal for a trend reversal or an acceleration of a movement.
Of course, it is also important to choose the periodicity of the graphs used for the technical analysis of commodities. This periodicity must be chosen according to the trading horizon of each individual and the short, medium or long term strategy envisaged. There are indeed displays in minutes, hours, days, even months or years.
Although it is no longer necessary today to know how to carry out the calculations necessary to understand the major technical indicators ones oneself, since these are calculated automatically by software offered by brokers, it is strongly advised to understand from which elements and how they are calculated in order to better grasp their interpretation.
Finally, be aware that a good technical analysis will not be reliable if you do not take into account, at the same time, the fundamental analysis. You must carry out both types of analysis at the same time in order to take into account both graphical movements and news indicators.
As we have just indicated, fundamental analysis is the second type of analysis that is essential for understanding how the price of a raw material can evolve. This specific analysis uses various economic data and certain news items in order to anticipate future price movements of an asset.
Fundamental analysis of commodities will look at the relationship between the price of an asset and economic fundamentals such as unemployment, inflation, growth or interest rates. These economic fundamentals, which are constantly changing, are also influenced by geopolitical events or government decisions. They generally have a significant impact on most commodities. Knowing how to interpret these data in the context of fundamental analysis is therefore an essential prerequisite for analysing the price of a commodity.
Of course, the fundamental data to be used here, which can influence the price of commodities, are a little more diverse. The following publications, data and information are among the elements that you should absolutely analyse:
· Inflation: Historically, inflation and commodities have been positively correlated. Indeed, when inflation rises, the price of commodities tends to rise as well and vice versa, since some traders use the purchase of commodities to protect themselves from inflation.
Of course, the fundamental data to be analysed varies from one raw material to another and we will tell you in each dedicated article which elements to focus on.