Can you trade commodities in SGX?

 

 

Commodities have been traded for thousands of years, from the agricultural product trade in ancient Mesopotamia to oil speculation on today’s market. The world economy is growing larger and larger every year, especially with China’s rapid industrialisation over the past couple of decades. With a more significant demand comes a higher need for raw materials, which can be found in commodities.

 

Here we will look at what commodities are and how to trade them in Singapore Exchange (SGX).

What are commodities?

Commodities are defined as basic goods used by people with limited availability relative to their demand. They come in three categories: energy products, metals and minerals, and agricultural products.

Energy Products

Energy products are used to power cars, homes, and factories. Crude oil is the most commonly traded energy commodity in the world. It is used as a feedstock for gasoline, diesel, and jet fuel. Brent crude oil is a key benchmark price for buyers and sellers of worldwide petroleum products.

Metals and minerals

Gold is often seen as a safe-haven investment during times of economic turbulence. Metals and minerals are used in construction, manufacturing, and technology. Copper is an essential metal because it has very low corrosion resistance and can be reused multiple times. It is also non-toxic, which does not react with other metals or chemicals. Aluminium is also a non-reactive metal, has high light reflectance, and has good heat conductivity. It is often used in the transportation industry as it can be fabricated into various shapes and forms.

Agricultural products

Agricultural products are foods and raw materials for manufacturing processes. Sugar cane is harvested to make sugar, a common sweetener used in many food products. Corn, wheat, soybeans have been staple crops worldwide for centuries due to their ability to grow widely in different climates. Soybeans are commonly used as oil when extracted or made into soy milk or tofu. Beef cuts are popular proteins in human diets not just because they taste good but because beef production requires less land than other types of livestock like dairy cows.

 

Benefits of trading commodities in SGX

There are many benefits of trading commodities in SGX. Some of these benefits include:

Liquidity and diversity

SGX offers a high level of liquidity and diversity, which is beneficial for investors. This is because a wide range of commodities is available for trade, and investors can access global markets through SGX.

Regulation

The SGX is regulated by the Monetary Authority of Singapore (MAS), which ensures that the exchange is fair and orderly. This gives investors confidence to trade on the platform.

Efficiency

SGX is one of the most efficient exchanges in the world, with low latency and high throughput. This means that orders are executed quickly, and traders can quickly get into and out of positions.

Transparency

SGX is one of the most transparent exchanges globally, with a high level of disclosure of information. This allows investors to make informed decisions when trading commodities.

Diversification

Trading commodities can help to diversify an investor’s portfolio and reduce risk. This is because commodities are less correlated with traditional assets such as stocks and bonds.

Using ETFs and futures contracts to trade commodities

Commodities are traded on the SGX using either Exchange Traded Funds (ETFs) or Futures Contracts. An ETF is a security typically listed on an exchange that tracks the price of an index, a commodity, bonds, or a basket of assets like an index fund. They allow investors to gain exposure to either physical commodities or futures without dealing with storage issues involved with owning them physically.

 

On the other hand, Futures contracts are agreements between two parties to buy or sell an asset at a specific date in the future for a specified price. The difference between buying and selling is the “spread”.

To conclude

The benefits of trading commodities in SGX are many and varied. Overall, the SGX is a well-regulated and efficient platform that offers investors a variety of benefits when trading commodities. New traders should use a reputable online broker and trade on a demo account first.