Energy commodity trading is gaining popularity with each passing year. The market allows investors to take big risks and reap even bigger rewards. Perhaps no trading market in the world is as unpredictable yet rewarding as the energy commodity market.
Influenced greatly by global demand and supply dynamics, trends and natural events, the market calls for great research and due diligence before a person can consider themselves ready to take part in the action.
In February, a massive snowstorm in Texas caused electricity prices to spike dramatically. For three days, the price of electricity in the state was more than 300 times the average price.
Similarly, the grounding of a massive container ship in the Suez Canal caused oil prices to spike. It also caused the cost of renting tankers to increase by up to 47 percent. These are just two examples of how certain events can greatly affect the energy commodity market.
Overview of The Energy Commodity Market
Due to the increasing global connectivity of energy markets, the prices of various commodities are now being traded across different continents, with gas being the most popular energy commodity.
Because of the rapid emergence and evolution of new market structures, traders utilize new trading platforms and algorithms to cope with the increased volume of transactions. These platforms provide traders with the tools they need to diversify their funds/ invest in a wide range of energy commodities and give expert insights/ industry data to help them stay in the loop.
The evolution of energy markets has led to the development of automated trading methods that are more similar to those used in fixed-income and equity markets. The increasing environmental and energy transition has also led to the emergence of new commodities such as biofuels and renewable energy certificates. These new products are often traded on over-the-counter markets due to their limited liquidity.
The emergence of these new trading platforms and the increasing number of participants have led to the commodities market being more competitive in nature than ever before.
Independent gas and oil companies are now becoming more competitive with traditional utilities by launching their trading desks. Other players are also participating in the new commodities market. The various developments in the energy industry allow companies to create new sources of value.
As the number of commodity market participant expands, more firms are also launching trading-as-a-service platforms. These platforms are designed to automate the execution of short-term transactions. The various levers that energy firms can use to boost their trading performance are designed to help them maintain their profitability.
Commodity Markets Fundamentals
Over the past decade, many commodity markets have evolved due to the increasing number of new energy sources and the transition to renewable energy.
Various commodities are now being traded in the commodity markets, such as renewable energy certificates and European Union emission allowances. Other commodities include used cooking oils and first-generation biofuels.
Although energy and commodities firms may benefit from having more active trading desks in these markets, they still require strong risk management practices to ensure their profitability.
Several companies have started developing trading desks focused on certain commodities, which can offer higher trading margins. This is also beneficial for industrial companies as they can better understand the price discovery process.
Oil and gas companies have also started developing trading desks focused on certain types of biofuels. These desks trade vegetable oils and other waste oils.
Using Advanced Analytics
Advanced analytics are helping investors gain a competitive advantage by providing them with the necessary tools to monitor and react to the changes in the market. Expert analysis is made possible through the availability of various data sources, such as satellite tracking and weather data.
Advanced analytics can also help investors avoid potential losses due to the volatility of short-term markets. Since humans cannot process large amounts of data fast enough, the commodities market has quickly adopted technology to help investors make smart trades.
By implementing advanced analytics, traders can minimize their risks by up to 30 percent. They can also increase their productivity by implementing an end-to-end automated process. As part of the transformation, Futures trading agencies have also started shifting their focus from making decisions to improving their advanced analytics models.
Closely related to advanced analytics is the utilization of big data in machine learning and artificial intelligence algorithms aimed at helping hedge funds, financial institutions and other institutional trading companies to map the potential trajectory of commodity prices.
This is usually done to secure an edge over other market participants in their quest for risk reduction and increased profitability.
Adopting A Best In Class Trading Platform With Crystal Ball Markets
As mentioned before, commodities trading is a highly reactive market that can be impossible to predict without the help of expert insights, analysis, and a glimpse into historical data. It is imperative for commodity market traders to use a platform that provides them with an easy-to-use and functional user experience.
If you’re looking for the best trading app for beginners, Crystal Ball Markets is what you need, which enables the trading of a wide range of stocks and energy commodity CFDs. Apart from commodities, the platform allows traders to diversify their funds by investing in a pool of highly lucrative options.
The company is a reputed online trading platform, allowing users to trade cryptocurrencies, currencies, metals, indices, and many other options. It provides historical data and technical analysis tools to help traders stay up-to-date on market trends and understand when to buy, hold, or sell. Visit their website or contact them for more information.
About The Author
The author is a trader with over 15 years of experience in commodities and forex trading. He has been affiliated with Crystal Ball Markets for over two years.