When it comes to trading energy commodities in Australia, there are a few things you need to know first. Here’s a walkthrough of the basics of trading these products and some critical considerations when making your transactions.
You need to understand that energy commodities can be traded in two ways: physically or financially. Physically trading energy means buying and selling the actual commodity itself, while financially trading means dealing with the contracts and futures associated with energy products.
When trading physically, you’ll need to consider the product’s location. For example, if you’re looking to trade crude oil, you’ll need to find a market that deals with this particular product. Similarly, if you’re trading electricity, then you’ll need to be in a place that has a substantial electricity market.
The market for physical trading is crowded, and it can be hard to find a buyer or seller if you’re looking to trade outside of the major markets. It is where financial trading comes in.
When trading financially, you’ll need to take a slightly different approach. Although you’ll still be buying and selling contracts for energy commodities, these transactions will be much less physically involved – you won’t need to worry about the location or quantity of the product. Instead, you’ll need to be aware of the prices of these contracts and make your trades accordingly.
It would be best to remember there are a few different ways to trade energy commodities financially. The two most common methods are forwards and futures contracts. Forwards contracts allow you to agree on a price for a commodity at a specific point in the future. In contrast, futures contracts involve buying and selling contracts at an agreed-upon price today.
The difference in risk between these two types of trading is substantial, so you’ll need to be sure of what it is you’re hoping to achieve before making any transactions. The difference in return can also be quite significant, so it’s essential to do your research before making any decisions.
These methods have both benefits and drawbacks, so it’s essential to understand them before making any trades. For example, forwards contracts can be tailor-made to fit your specific needs, but they’re also less liquid than futures contracts. On the other hand, futures contracts are more easily traded, but they can be more expensive to enter into.
The decision of which method to choose ultimately comes down to personal preference and the amount of risk you’re willing to take. However, it’s always a good idea to speak to a financial advisor beforehand to get their professional opinion.
The next thing to consider is the number of energy commodities you want to buy or sell. It will help determine your transaction costs – for example, if you’re selling a large quantity of any commodities, it may attract higher fees from the market. Other costs involved when trading energy commodities are the fees for storing the product and security charges if necessary.
In addition, you’ll need to be aware of the time of day that you’re making your trade. Energy commodities can be traded around the clock, but there are certain times when the markets are more active. For example, the crude oil market is most active in the early morning hours (between 6 am and 10 am EST), while the natural gas market is busiest in the evening (between 4 pm and 8 pm EST).
Finally, you’ll need to be aware of the types of energy commodities being traded. Various products are available, including crude oil, gasoline, diesel fuel, natural gas, and electricity.
Each product has its own unique set of factors that determine the price. For example, crude oil is primarily influenced by global demand and Middle Eastern politics, while natural gas prices are heavily affected by weather conditions. Local supply and demand also play a role in the price of energy commodities.
Although trading commodities are more volatile opposed to investing, for instance, in a trust account, it adds a nice variety to your portfolio if you follow safe trading practices.