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7 Tips on Commodity Trading in Australia

By Will Ellis

Last Updated on January 4, 2024

Is it your aim to trade commodities in Australia? This decision has both advantages and disadvantages you’ll need to consider.

However, although trading commodities requires knowledge of the commodity market and specific commodities, this potentially profitable undertaking can help increase your financial position.

With this in mind, we have gathered the top seven tips on commodity trading in Australia so you can begin trading confidently. Read this guide for all the advice you need.

Table of Contents:

What Is Commodities Trading in Australia
3 Factors to Consider Before You Start Trading Commodities in Australia
3 Benefits to Look Forward to When Trading Commodities
7 Tips to Consider for Successful Commodity Trading
Types of Commodities Available to Trade
Features to Review in a Commodity Trading Platform
How to Trade Commodities in Australia: Processes Involved in Trading Commodities
Commodity Trading in Australia: What to Remember
Commodity Trading in Australia: FAQs

What Is Commodities Trading in Australia? 🔎️

Commodities trading in Australia is buying and selling assets with monetary value. When you trade assets, you may do so over a long or short timeframe. As a day trader, you may sell assets over a short timeframe and speculate on the price movements. As an institutional trader, you may sell assets over a long timeframe.

As a trader, you will trade commodities via Australian Securities and Investments Commission (ASIC) registered brokers. Each broker has different commissions, fees, and services you can use.

When you use them, it’s important to think about trading hours. Sometimes, you might need to trade during the early morning, depending on the commodity you trade. You might have to pay overnight fees if you trade out of hours and want to maintain the overnight position.

3 Factors to Consider Before You Start Trading Commodities in Australia ➡️

Considering a few factors before trading commodities in Australia can help you prepare for the complex processes. Our financial experts have gathered the factors you need to start commodity trading in Australia.

Understanding Market Dynamics

It’s essential to begin by understanding commodities market dynamics, including economic indicators, supply and demand trends and the geopolitical events that shape and affect market prices and values. Understanding these factors can impact the outcome of your commodity trading activity.

An in-depth understanding of your specific commodity is also highly recommended. We suggest that you keep track of the news related to the commodity you intend to trade and take the extra step to research it before you begin trading. You can make fully informed commodity trading decisions with this market and commodity knowledge.

Acknowledging and Managing Risk

When you begin trading commodities, there is an element of the financial risk involved. Instead of taking the plunge instantly, our financial experts recommend that you begin by acknowledging and managing risk. One of the ideal methods for acknowledging this risk is to determine your risk tolerance while managing risk, which is best done with some key features of commodity trading platforms (which we will explore later in this article).

Factoring in your financial goals, comfort level concerning market fluctuations, and investment timeframe is essential to determine risk tolerance. You’ve also got the option of consulting financial advisors.

Alternatively, you can work with commodity trading advisors registered with the Commodity Futures Trading Commission. These professionals will make risk tolerance evaluation more efficient. They will help you determine and weigh up your commodity investment goals, whether short or long term with your risk tolerance.

Allocation of Capital and Financial Planning

Allocation of capital and financial planning are fundamental factors for commodity trading. You’ll need to ensure you have access to capital, review your specific financial situation and think about how much capital you want to invest.

Now, we highly advise that as a beginner, it’s important, to begin with affordable amounts that won’t impact your financial situation too much if you make a loss. You’ll always be able to increase the capital you invest during commodities trading when you gain experience. This way, you can trade commodities with fewer losses.

3 Benefits to Look Forward to When Trading Commodities ✅️

Despite the need to keep certain factors in mind when trading commodities, you can gain advantages with this type of venture in Australia. Our experts have gathered the three benefits to look forward to when trading commodities. Let’s consider them now.

Short-Term Profits

When trading commodities, it’s possible to make short-term profits. This profit is possible when you correctly time the purchase and sale of your commodities. This profit is easier to understand when we look at the example of commodities trading.

If you invest in futures contracts, you may be able to control larger positions using just a 5% margin (with the rest accounted for by borrowed funds). After depositing 5% of the contract value, you may control $10,000 worth of gold with just $500. When the commodity increases in value by 10%, and you sell the commodity, you may earn a 100% profit in your $500 deposit.

Portfolio Diversification

Portfolio diversification is possible with commodity trading. This portfolio diversification involves investing in various assets to avoid focusing entirely on one type. It reduces the risk of your portfolio because the commodities market moves asynchronously compared to other investment types. They have a low correlation with stocks, so you can diversify your portfolio and minimise the risk of investing all funds into one market.

Hedge Against Inflation

Even when there is a depreciation of currency or inflation occurs, commodities can counter this effect. Since your commodities prices can rise when inflation happens, their value offsets the decreasing value of the currency. It’s the ideal way to protect your asset value.

Some commodities that have been a long-term hedge against inflation include gold and oil. Their value rises even when the value of the Australian dollar decreases, as research shows. The annual value of gold in Australia has outpaced the Consumer Price Index and performed well over the past 20 years.

7 Tips to Consider for Successful Commodity Trading 💰️

We’ve provided a few factors to consider before you invest in commodities. Here, we will share seven tips for successful commodity trading so you can get off to an excellent start.

1. Use and Expand on Your Existing Knowledge

Existing knowledge is crucial for trading commodities. With more knowledge, you can make informed decisions. You may have more knowledge about some commodities than others. You may also be more interested in some commodities than others.

For example, you might know that gold is a commodity that hedges well against inflation. You might be more interested in gold than livestock as a commodity. Therefore, it’s worth weighing up the benefits of trading gold commodities instead of livestock.

At the same time, you should expand on your existing knowledge. Try to read articles related to your preferred commodity. Take part in a forum that shares information about your preferred commodity. Over time, your knowledge will increase and help you make the best decisions.

2. Consider Investing in Commodity Stocks

Instead of investing in physical commodity options, stocks are one alternative. Commodity stocks offer an indirect investment opportunity. They are investments in companies that create commodities for trade.

These commodity stocks have a few advantages. As the company increases commodity production, the value of the stock can sometimes increase. Alternatively, you can earn revenue from commodity stocks through dividends.

With dividends, you can potentially earn a steady income from the company. Of course, this will depend on the company and stock’s performance. It works because you become a shareholder when you invest in these stocks. You have a stake in the company, plus its success with its commodities.

3. Think About the Difference Between Contracts for Difference and Underlying Commodity Markets

Contracts for differences work differently to underlying commodity markets. By considering the differences, you can reap specific advantages.

For example, with contracts for differences, you can receive leverage. This leverage helps you make trades with lower capital amounts. You won’t need to provide the total value of the asset in full with leverage. Trading with leverage is possible because you use a broker’s margin. The margin refers to borrowed funds, which brokers offer when you agree to provide collateral.

We can look at an example of leverage to understand the benefits. You might want to trade gold at $1,000 per ounce. If you’ve only got $1,000, you’ll only be able to purchase a single ounce. Leverage allows your $1,000 to stretch further. With ratios of 1:10 offered by a broker, you can control $10,000 in gold and increase profit margins.

The advantage of leverage is possible to some extent with underlying commodity markets. However, it can vary from market to market.

When you use contracts for differences, other advantages apply. You can gain extended trading hours. You can also access to a significant selection of markets. The extended trading hours mean you can benefit from favourable price movements beyond the trading hours. The markets you can access may be more extensive than specific underlying commodities.

4. Acknowledge Economic Commodity Market Cycles

Knowing how markets behave may have been difficult in the past. However, it’s important to acknowledge economic commodity market cycles. This process is easier nowadays. Historical data can keep you informed. Macro and micro cycles are the main types to keep an eye on.

These cycles refer to the trends that happen in commodity markets. The trends can fluctuate depending on geopolitical events, dynamics of supply and demand, and economic growth. You’ll need to take note of each phase to determine when prices will increase or decrease.

Some of the phases of commodity market cycles include expansion, peak, contraction and trough. Expansion happens when commodity prices increase. Peak refers to the moment the commodity prices reach the highest level. Contraction occurs when commodity prices decrease. Trough refers to the moment commodity prices reach the lowest level. Once you know these phases, you can speculate more accurately on prices and make better profits.

5. Follow News Updates Related to Your Commodities

We’ve mentioned that participating in a forum and reading articles is important. It’s also worth ensuring you follow current news related to your commodities. This process may involve reading websites that provide information on financial news, such as The Australian Financial Review and Investing.com.

When you access these websites, head to the dedicated categories related to commodities. You can also look at the analyses in these sections to make informed decisions.

Industry publications are ideal for specific information about individual commodities. You may subscribe to commodity-focused publications. Many offer market forecasts on gold, soft commodities or energy commodities such as oil. Our top picks include the Department of Agriculture and Resources and Energy Quarterly.

6. Complete a Technical Analysis of the Market Price With Financial Tools

We highly recommend completing a technical analysis of the market price. Financial tools are useful for completing these analyses. You can begin by analysing price charts available on your platform. You’ll need to look for patterns in the data and resistance levels. For instance, consider whether the commodity value shows an upward trend and see whether selling pressure has prevented commodity prices from increasing.

Trading volume analyses are also important. Trading volume refers to the total amount of contracts that are traded for commodities in a timeframe. If you spot a high trading volume, you’ll notice that market interest is high. This analysis also gives you greater conviction in the movement of prices.

Don’t forget also to align your strategy with the charts’ timeframes. You can do this by selecting a daily or weekly timeframe. Each timeframe is ideal for specific strategies. For instance, an intraday setting is ideal if you’re looking for a quick entry and exit point. Monthly charts may be better if you’re looking for overall trends as a long-term trader.

7. Keep a Financial Record

Maintaining a financial record is handy when trading commodities in Australia. This method will keep you organised. However, more importantly, it will help you comply with regulations. One key thing to note when keeping a financial record is the details of each transaction. With these details, you’ll easily track the trades you make. Plus, you can work out your profits or losses more efficiently.

Account statements and tax documentation are also vital to keep. They will ensure you provide accurate tax reports that reflect income. Remember that if you earn more than $180,000 as a day trader, you’ll pay 45% in line with the capital gains tax rate.

Types of Commodities Available to Trade 📑️

You’ll find that there are several types of commodities available to trade. If you’re just starting and are curious about the range of commodity markets you can consider, check the points listed below in this section.

Livestock and Meat

Cattle and livestock are popular commodities to trade. Sheep and goats are another couple examples of livestock and meat commodities. These livestock as commodities are known as “soft commodities” because they fall into the category of assets reared in Australia on farmland above the ground.

Precious Metals

Precious metals are another popular commodity. Gold, silver, industrial metals, and palladium are examples. These precious metals are called “hard commodities” because they are mined and extracted from the ground.

Energy Commodities

Energy commodities include natural gas, crude oil, and petroleum products. These physical commodity types can generate power. A few new traded commodities fall into the energy commodities category. For example, you may be able to trade types of renewable energy or electric vehicle technology.

Agricultural Commodities

Agricultural commodities include goods that are farmed. Examples of this commodity type include grains, fruits, cereal and broadacre crops, corn and other vegetables. These commodities are called soft commodities because they are grown and not mined.

Features to Review in a Commodity Trading Platform 👀️

When trading these assets or commodities, one of the easiest approaches is to use a commodity trading platform. Each of these platforms has unique features. Here, we’ll consider the key features to review and look for in a commodity trading account so you can easily begin trading.

Stop-Loss Options

Using stop-loss options, you can establish a predetermined price for a commodity. With this predetermined price, you sell the asset when it reaches that value. Commodity trading platforms with this feature automatically execute the order to sell the asset. It ensures you are protected from negative price movements. It also works as a risk management strategy tool.

Futures Contracts

Reputable trading platforms give you access to futures contracts. Futures contracts can be thought of as agreements to purchase and sell commodities. They set a predetermined price for the commodity. You can speculate on commodity price movements using these futures contracts through commodity trading platforms. However, keep in mind that through this feature, you may expose yourself to risk.

Analysis tools

You’ll also find analysis tools with trading platforms. These tools provide indicators to help you complete technical analysis, charts to track patterns and trends, and market news. Using these tools, you will have a better idea of when to exit or enter a trade. They also help you complete research into current market events that affect the price of your commodity.

How to Trade Commodities in Australia: Processes Involved in Trading Commodities ➡️

Wondering how to trade commodities in Australia? Our experts have gathered the main processes involved just below.

To trade commodities in Australia, you may begin by selecting a market. You may need to select between hard commodities like gold or silver and soft commodities. You should then start researching these markets to expand your knowledge. Ensure you have a solid foundation of experience and knowledge before you begin trading.
After your research, you’ll need to select an online broker or platform. Some examples of online broker platforms include Webull Australia, Superhero and Tiger Brokers. Each of these broker platforms has unique features. Since some may offer specific features that others don’t, we recommend comparing several options before you select one.
Purchase tangible commodities such as precious metals or intangible commodities such as cryptocurrency. You then need to test your strategy with a sum of money you can afford to risk. Speculate on the direction of price movements (whether the commodity will increase or decrease in value). After this, it’s important to consider the intensity of the price movements (how much the commodity will increase or decrease in value).
Make sure you monitor your trades and close them accordingly. Some platforms offer stop-loss features, so take advantage of these to execute the sale.

Commodity Trading in Australia: What to Remember 💡️

Trading commodities in Australia is a great way to diversify a portfolio. Always remember to research the commodity before you start trading. Once you’ve selected a commodity, select a reputable online broker by comparing their features.

With the seven tips in this article, you’ll have a good foundation to plan, create a strategy and test your trades. Keep our tips in mind to trade commodities successfully and start gaining funds.

Commodity Trading in Australia: FAQs 📢️

Need more facts about commodity trading in Australia? Here are our frequently asked questions and answers about this topic.

What Sum of Money Do I Need to Start Trading?

Each platform will expect a different sum of money for you to start trading. While some platforms may expect $100, others may expect $200. On the other hand, although a minimum deposit is commonly expected, some do not expect this. In this case, you can start trading without a minimum deposit.

Which Taxes Will I Pay When Trading Commodities in Australia?

Some taxes you will pay when trading commodities in Australia include Goods and Services Taxes and, in some cases, capital gains tax. Income tax may also apply. This latter tax applies if your commodity trading activity is your main income source. You’ll pay tax on the profit you make.

Is It Legal to Trade Commodities in Australia?

It is legal to trade commodities in Australia. You’ll only have access to the brokers regulated by the Australian Securities and Investments Commission body (ASIC). If you’re seeking consumer protection, be discerning when selecting a broker or platform and choose one ASIC-regulated.