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1. WHAT ARE COMMODITIES?
Commodities are materials extracted from earth that man use directly or to transform them into consumer goods.
A distinction is made between renewable commodities (e.g. vegetable materials such as cotton) and non-renewable materials (e.g. energy materials such as oil or metallic materials such as gold).
The markets for commodities are vast and cover energy, metal and agricultural commodities.
The market for commodities continues to grow due to the ever-increasing consumption of developing countries, notably China and India.
The consumption and production of materials depends on many factors :
• Climate conditions
• Political and economic statements
• The rate of the dollar because many commodities are valued in USD.
• Supply and demand
2. HOW DOES COMMODITIES TRADING WORK?
Commodity trading relies on a CFD (Contract For Difference) at Gravity Market in order to use leverage.
Oil and gas contracts that are not on the spot expire every month, usually one day before the contract expires or at the expiry of the underlying market contracts. In order to make these trades easier, Gravity Market offers all these CFDs with no expiration date and the costs are included in the commission.
3. WHAT ARE THE BENEFITS OF TRADING COMMODITIES?
Trading commodities offers many advantages, the main ones are as follows :
• A 24-hour market from Sunday evening to Friday evening with an average interruption of 1 hour per day.
• A market in which one has the ability to trade on margin with the use of leverage
• A very broad market with prices that react quickly to current events, which allows for constant opportunities.
• A highly liquid market, which means that spreads remain low and facilitate the entry and exit of transactions.
• A market in which one can be in a buy or sell position
4. WHY TRADE COMMODITIES WITH GRAVITY MARKET?
Whether you are an experienced trader or a newcomer, Gravity Market offers you many advantages that will help you achieve your goals :
• 8 commodities
• Spread from 30 points on gold
• Low VWAP spreads
• Leverage up to 1:200 *
• From 0.01 lot
• 0 Raw spread point
• Quick deposit and withdrawal
* For a PRO account otherwise 1:100 ** For Standard account and Active Trader
** Gravity Market reserves the right to reduce the levers when the risk taken by the user is too high.
5. THE SPREAD
The spread, also known as the bid-ask spread, is the difference between the price at which you can buy a product and the price at which you can sell it. The spread is given by the liquidity provider.
The broker can increase the spread in order to make money, but can also choose not to touch it and take a fixed commission separately. In the latter case, the spread is defined as a zero raw spread.
Gravity Market applies a zero raw spread : customer spreads are the market spreads for all accounts.
6. CONTRACT SIZES
In commodity trading, the size of contracts is defined by the value of an ounce of the commodity concerned. So assuming that an ounce of silver is traded at USD 17, then 5 lots of silver (XAG) at 5,000 (OZ) correspond to an investment of 5*5,000*17=425,000 USD.
You can buy mini lots or micro lots as shown in the table below :
Note : USOIL and UKOIL are considered as index CFDs and therefore their contract is calculated as an index.
7. THE COMMISSION
When the trader wants to place an order, he has to pay a commission to the broker on the face value of a lot.
For example, for a PRO account on gold, the trader will pay USD 2.50 for his in order and will pay USD 2.50 for his out order again, making a total of USD 5.00.
8. MARGIN TRADING
When trading in commodities, it is difficult to get a significant return on your investment with a small amount of capital.
Indeed, let's take silver as an example by assuming that you buy a micro-lot (0.01 * 5,000 = 50 OZ) and the silver is traded at 17 USD. Then, if the silver goes to 18 USD you earn 0.01 * 5 000* 1 USD = 50 USD for 50*17 = 850 USD invested.
The previous case was the case where you take 100% margin on your position. As you can see, the return is low in relation to the amount invested. That's why there is leverage.
To trade with leverage, the idea is to anticipate the margin required for the size of your trade. For example, with a leverage of 1:30 you only need to have $1,000 of margin to take a position of $30,000.
Using the example from earlier, if you put in 850 USD of your capital and use a 1:30 leverage, you invest 850*30 = 25,500 USD giving you 1,500 OZ.
When the silver increases to 18 USD you don't earn 50 USD anymore but 50*30 = 1 500 USD.
However, leverage not only increases your potential gains, but can also cause you to incur significant losses that can sometimes exceed the capital available in your account. Therefore, it is best to start with transactions that do not use all your capital and with low leverage in order to get to know the market.
*Does not include commissions
9. THE SWAP
The SWAP (also called rollover) is an interest paid by the online broker's client for open positions from one day to the next. This interest rate is applied to any nominal amount whose trading position is open for more than 24 hours.
When you take a position on an index, you are in a way committing to sell or buy it back within the day. If this is not done, we exchange (swap) for a new day and the swap rate is applied to our position.
The swap varies according to several data :
• The online broker
• Type of position : buy or sell
• The negotiated instrument
• The number of days the position is open
• The nominal value of the position
The overnight swap rate depends on the 1-month interbank funding rate (e.g. LIBOR or EURIBOR) and the commission applied by the prime broker for the overnight swap.
A distinction must therefore be made between the rollover of a buy and sell position :
CFD rollover on purchase = prime broker's commission - interbank rate
Rollover CFD on sale = Prime broker's commission + interbank rate
It is therefore cheaper to maintain a position when selling than when buying. Here is the calculation of the swap in detail :
DFC = (V*R)/D
- DFC = Daily Finance Charge = Swap
- V = Notional value during closing
- R = Interest rate given by the liquidity provider
- D = Number of days. For the calculation 360 days is used for all indices except for AUD and GBP products where 365 days is used.
Other things to know :
• The rollover is calculated on the basis of the total value of a trade and not in relation to the margin used.
• Banks are closed on weekend, but they continue to charge interest. Gravity Market therefore charges three days of rollover on Friday night at closing.
The VWAP (Volume-Weighted Average Price) is the price at which all orders have been executed, weighted by the volume of orders.
When we buy or sell a large volume of orders, there is no certainty that we will get all of our orders at the desired price. So to have a maximum chance of having a large volume of orders at the desired price, we must look to see if the broker has significant liquidity and therefore offers low VWAPs.
Note that the VWAP can also be used by traders as an intraday trend indicator (less than one day).
11. COMMODITIES OFFERED BY GRAVITY MARKET
12. COMMISSIONS PROPOSED BY GRAVITY MARKET
NON TRADABLE RAW MATERIALS GIVEN AS AN INDICATION
¹ In a trade you place one order to buy an asset and a second order to sell it.