In the Forex market, you buy and sell in currency pairs. The first currency in a pair is a base currency, and the following – a quote currency. When you place an order for a currency pair, you buy the base currency and sell the quote one. For example, EUR/USD= 1.122 means that you can exchange 1 euro for 1.122 US dollars. The major currency pairs always contain USD and are considered to be the most popular in Forex. Minor currency pairs or crosses do not involve US dollars yet staying liquid (EUR/GBP, GBP/JPY, and EUR/CHF). Exotic currency pairs offer wider spreads but deal with less popular and more volatile global currencies. If you are no expert, do not try trading exotics.
Commodities are raw materials that can be bought and sold. FBS offers the most popular ones such as precious metals (gold – XAU/USD, silver – XAG/USD, platinum and palladium), oil (WTI and Brent) and natural gas. If you open a Metatrader, you will see WTI Oil and Brent Oil. For example, to trade WTI during July of 2020 you need to choose WTI-20Q. This is the contract for difference (CFD), the last letter means the month of the expiration. WTI-20Q is expired in July. To trade Brent oil during August of this year you should pick BRN-20V.
In the market, everything costs something. When a company goes public, it lets the market decide how much it costs. To do that, it divides its ownership into a certain number of fractions and offers the public to buy them. These fractions are called shares, while the total list of shares is company stock. FBS offers most a huge variety of popular stocks such as Amazon, Apple, Tesla, Google, Facebook and so on. You can check the full list on our website.
What is commodity trading?
We define a commodity as a basic good used in commerce that is interchangeable with other goods of the same type. People use commodities as inputs in the production of other goods or services. The quality of a given commodity may differ slightly, but it is essentially uniform across producers. When traded on an exchange, commodities must also meet specified minimum standards, known as a basis grade.
Learn and understand what moves crude oil
Oil is one of the most popular assets in the world, so numerous factors are affecting its price. Just like in any other asset, the crude oil price is affected by supply and demand. Most crude oil is produced in the US, Saidu Arabia, Russia, Canada, and China. Altogether these five countries are controlling more than 50% of the global crude oil extraction. Weather conditions, demand changes, ecological and geopolitical concerns are all affecting the oil price.
Commodities such as oil and grains may vary drastically in quality. For example, the basis grade for a crude futures contract is according to the oil’s specific levels of hydrogen and sulfur.
Indices are baskets of individual stocks, which are often ranked by independent institutions like major banks or financial companies. The most well-known stock index is the S&P 500. It includes 500 large US companies. This index reveals the performance of the stock market by risks and revenues of these companies. Most traders use it as a primary gauge of the whole market sentiment. There are also other stock indices such as Nasdaq, Dow Jones and etc. To trade indices mentioned above, you should choose contracts for difference (CFDs), as well as with oil CFDs.
How Does Recession Affect FX Signals and Financial Markets?
Unlike most products, oil prices are not determined entirely by supply, demand, and market sentiment toward the physical product. Instead, supply, demand, and sentiment toward oil futures contracts, which are traded heavily by speculators, play a dominant role in price determination. Futures contracts are often used as a hedge against price fluctuations. Oil is a volatile asset, and this is the reason for the futures to be so popular.
There are also seasonal demand swings for crude, clearly exemplified by the well-known “summer driving season.” You can see this seasonal price action and the impact of the summer driving season in the chart below.
The bottom line
Now you have all information you need for a basic understanding of trading instruments. If you are a complete beginner, start trading with major currency pairs. Follow news and read analyses to get always updated. When you feel confident, add gold (XAU/USD) and most widespread stock indices. Check our guidebook to get more knowledge. Also, you will find useful forex strategies in our tips for traders section. Good luck!
Understand the crowd
Oil traders don’t act randomly. Some buy oil because of seasonal demand, while others sell it due to hurricanes that shut down oil sites. Fundamental events have different duration and impacts. Professionals use oil futures as a hedge against market volatility. Retail traders, on the other hand, love big swings in price. Oil can make a move you’ll never forget, and a crash in April 2020 proves it. A New covid-19 strain was discovered in South Africa in November 2021. The price of black gold has fallen by more than 13% that day—an unbeatable result if compared with other commodities, especially gold.
Commodity Prices and Currency Moves
How to choose between WTI crude oil and Brent
Due to advancements in oil drilling and fracking, there has been a trend of West Texas Intermediate (WTI) becoming cheaper than Brent Crude oil. Before this, Brent Crude tended to be cheaper than West Texas Crude. However, the American shale revolution and the increased production led oil prices to fall from above $100 to below $50 from 2014 to 2015.
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Another factor that can lead to significant differences between Brent Crude and West Texas Intermediate is geopolitical trouble. During times of crisis, the spread blows out as political uncertainty leads to surges in Brent Crude prices. West Texas Intermediate is less affected because it is based in landlocked areas in the United States. As a result, the prices of the two types of oil are aligned most of the time.
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What signals do day traders use?
Seven of the best indicators for day trading are:
On-balance volume (OBV)
Average directional index.
Moving average convergence divergence (MACD)
Relative strength index (RSI)
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