How to Trade Commodities in Canada
| Commodity Market Definition
A commodity market is a physical or virtual marketplace for buying and selling raw materials or primary products like oil, gold, cotton, copper, silver, wheat, and barley. |
Commodities are tradeable consumer products categorized into metal, energy, livestock, and agriculture. These commodities are more volatile than stocks, as they fare well in times of high inflation due to the forces of supply and demand.
Some commodities are more volatile than others and are impacted mainly by environmental concerns, geopolitics, etc. If you want to try something more active and daring, investing in commodities in Canada could be your best bet.
Continue reading this article to explore ways to start commodities trading in Canada, learn its best practices, determine the minimum amount for trading, and many more.
How to Start Commodities Trading in Canada
Commodities trading in Canada offers investors and traders diverse opportunities to participate in the global market. With the fluctuating prices of various commodities, like WTI oil, natural gas, wheat, cotton, copper, and corn, it is essential to understand how to navigate this dynamic sector.
To start your commodities trading in Canada, learn these steps to help you in the trading market:
1. Choose a Trading Platform
The first step is to research the best and most reliable trading platforms or reputable brokerages that offer access to the commodities market.
Ensure the platform provides real-time data, charting tools, and order placement functionality for trading commodities like futures, stocks, or exchange-traded funds (ETFs).
2. Do Your Research
Conducting in-depth market research and analysis on companies of interest and their stocks is crucial in stock trading.
You can utilize technical tools like stock screeners to analyze commodities market trends and monitor supply and demand dynamics. Stock screeners also help you analyze news related to commodity production and consumption.
3. Map Out Your Trading Strategy
Devise your trading strategy based on your risk appetite, time horizon, and market analysis. Your trading strategies will depend on how much risk you can bear and the current market movements and conditions.
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Pro Tip
You should answer the following questions before deciding on the best stocks and securities to invest in:
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4. Create Your Account
Opening an account with a trading platform is straightforward and occurs online. Usually, you must provide your name, address, photo ID, utility bills, and other essential information to verify your identity and residency.
Many registered Canadian brokers offer several account types, such as individual, joint, or tax-free savings accounts.
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Pro Tip
Suppose you invest in stocks to save for retirement or other long-term goals. A Tax-Free Savings Account (TFSA) of more than one or a Registered Retirement Savings Plan (RRSP) is best for you. Putting stocks in these accounts will exempt you from paying taxes on price gains and dividends. |
5. Fund Your Account
Once your trading account gets verified, you fund it by depositing money you will use for trading stocks. Some brokers require a minimum deposit when you open your account, but most brokers do not have such a requirement.
Brokers allow deposits or withdrawals via bank transfer, which is easy, free, and fast. You can also deposit using credit or debit cards, while some accept electronic wallets like PayPal, Apple Pay, Skrill, or Neteller.
6. Buy and Trade Stocks
Having researched the companies you want to invest in, the next step is to buy the stocks in your desired quantities. In this part of the process, you can also trade stocks depending on your desired quantities.
7. Monitor Price Movements
Always pay close attention to commodity prices and market news influencing price fluctuations. You can use charting tools to identify essential support and resistance levels, trends, and patterns that can guide your trading decisions.
8. Risk Management
Studying risk management measures and knowing how to implement them to protect your capital is crucial. Set stop-loss orders to limit potential losses, and consider employing risk-reward ratios to assess the profitability of your trades.
9. Always Stay Informed
You must continuously educate yourself about the commodity market and stay updated on industry news, economic indicators, and developments in major commodity-producing countries. Network, interact, and participate in forums or webinars.
You can also leverage educational resources to enhance your understanding and knowledge.
Ways to Invest in Commodities in Canada
For most Canadian investors, the best way to trade commodities is through an online brokerage, and the best investment is with commodity ETFs.
ETFs allow for easy trading because they are purchased like stocks and provide diversification with low expense ratios.
If you plan to diversify your portfolio, you can invest in commodities by purchasing:
1. Commodities
You can invest in a commodity by purchasing physical goods like gold, wheat, leather, cereals, groundnuts, etc.
To invest, first, you need to search for a dealer that sells the desired commodities and then buy and arrange for them to be transported back to your base. You can buy in substantial quantities or less, depending on your capital.
Likewise, you will need to get buyers if you want to sell them later to make your profits. This method fits those with experience in trading these commodities. For newcomers, you should learn the ins and outs of it before venturing.
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Note:
This approach requires being thoroughly hands-on in the whole process. It is also the most challenging and time-intensive investment method on this list. |
2. Stocks
Stock trading is one of the simplest ways to invest in commodities, as it only involves buying shares of companies that manufacture these products. To invest, you must complete an online application form via trading platforms or open a brokerage account.
Once you choose stocks and companies of interest, enter the number of shares you’d like to purchase and execute the order. You can monitor your investment frequently by logging into your brokerage account.
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Pro Tip
Before buying stocks in Canada, you should research the stocks you’re interested in using a beginner-friendly tool like a stock screener and check if the companies make impactful contributions to the industry. |
3. ETFs
Exchange Traded Funds (ETFs) allow you to invest in various companies simultaneously. They’re beginner-friendly assets like stocks that can be bought and sold through a brokerage account or online trading platforms.
However, unlike stocks, they offer a more diverse investment opportunity, spreading your investment across multiple companies to dilute the volatility risk. Many ETF options in the market come in groups, like; oil ETF, gold ETF, etc.
4. Futures
It is one of the most complex assets on the market traded by professional investors, and new investors should understand how futures contracts work before investing in them.
A futures contract is an agreement to buy or sell an asset at a fixed price on a specific date, although these contracts can be bought and sold repeatedly until the expiration date.
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Note:
The contract’s value will fluctuate based on market conditions making it a risky venture. If you hold a futures contract, you must fulfill the terms of that contract on its expiration date, whether the commodity’s price has increased or decreased. |
Why Invest in Commodities in Canada
Commodity prices are popularly known for their high volatility, which allows traders to profit from price fluctuations. With this, Canadians trade commodities as it opens opportunities for financial success.
If you are considering investing in commodities, here are its benefits:
1. Diversification of Portfolio
Diversifying your portfolio is the best way to achieve the quest for financial growth and stability. Buying different commodities, assets, and securities as part of your financial portfolio can mitigate risk and reduce reliance on a single asset.
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Did You Know?
Aside from Commodity ETF, thousands of exchange-traded funds are available in Canada. Examples of these are Index ETFs, Bond ETFs, sector ETFs, Real Estate ETFs, Currency ETFs, etc. |
2. Profit from Price Volatility
Commodities markets are famous for their volatility in price movements which can send prices soaring or plummeting. These price fluctuations create a fertile ground for clever traders to enter and exit positions, maximizing huge profit possibilities.
3. Inflation Constraint
Inflation can reduce the value of your money, making it crucial to protect your wealth. Commodities offer a strong defence against the erosive effects of inflation. Commodities mostly witness an upward surge when prices increase, thus preserving their intrinsic value and safeguarding your purchasing power.
How to Become a Commodity Trader
Commodities traders analyze various commodity markets to help their clients buy or sell their assets in the market.
Some are self-taught, while others are professionals with formal education and industry-related certifications, enabling them to work in these fast-paced environments worldwide.
If it’s your desired career interest, learn how to become a commodities trader in Canada and the skills necessary for the job.
Below are the steps and requirements for becoming a commodities trader in Canada:
- Get an undergraduate degree by choosing an undergraduate commerce or business program major in finance, accounting, or economics.
- Take fundamental and technical analysis courses, learn trading basics, and identify profitable trading opportunities.
- Take the CSI course and obtain a license to trade commodities in a primary or secondary market.
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Pro Tip
You can go to provincial and territorial regulatory authorities, like Ontario Securities Commission or Alberta Securities Commission. These institutions issue licenses to trade commodities. |
- To qualify, you can take the Canadian Securities Course, which has the approval of the Canadian Securities Administrators. Taking the course and passing the examination allows you to earn a license and work in the industry.
- Research commodities and learn how companies produce and sell their products to help you understand their pricing strategies and movements.
- Acquire work experience by applying for jobs to gain experience with stocks, shares, options, and futures.
- Update your resume and put your license to practice as you apply for a commodities trader role.
Commodity Trading Platforms in Canada
Conducting thorough research on the best trading platform is vital as you venture into trading securities. Many trading platforms exist in Canada, but these five are the most recommended for your trading journey.
1. Interactive Brokers
It is an American multinational brokerage firm and a member of the Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Investor Protection Fund (CPIF). It has a strong capital position and automated risk controls to protect clients from significant trading losses.
Features:
- Zero minimum account deposit.
- Many great research tools.
- Excellent customer service with 4.9 ratings.
- Low trading fees.
- There is a wide range of commodities to choose from.
- It offers IBKR, a powerful suite of advanced trading technologies designed to help clients achieve the best execution and maximize price improvement while minimizing market impact.
- Margin rates are up to 50% lower than in the industry.
- Earn interest of up to $4.58% on instantly available cash.
- Earn extra income on your lendable shares.
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Fun Fact:
Based on Reviewlution’s research and review, Interactive Brokers ranked 2nd as Canada’s best stock trading app. It has learning courses available on its platform and offers a “practice account” for first-time traders to use. |
2. XTB
XTB is one of the world’s largest stock exchange-listed FX & CFD brokers. It provides retail traders instant access to hundreds of global markets, accessible account openings, and free and fast deposit and withdrawal. The company has offices in over 13 countries, including the UK, Poland, Germany, France, and Chile.
Features:
- Commission-free stocks/ETFs for some.
- Free and fast deposit and withdrawal.
- Easy and quick account opening.
- Great customer service with 4.8 ratings.
- Superior execution speeds.
- Zero minimum account deposit.
- Easy to use and an excellent start for beginners.
- It offers customers over 2,200 instruments worldwide, including CFDs for FX, cryptocurrencies, indices, commodities, stocks, and ETFs.
3. Questrade
Questrade is Canada’s most prominent independent online brokerage with Low stock and ETF fees. It is a member of the Canada Investment Regulatory Organization (CIRO) and the Canadian Investor Protection Fund (CIPF), independent of banks but offering the same protection assurance as banks.
Features:
- Solid research tools for buying stocks.
- Superb customer service with 4.5 ratings.
- Minimum deposit of $1,000.
- No opening fees.
- No annual RRSP or TFSA account fees.
- Buy ETFs commission-free.
- Free to transfer your account.
- Low commissions.
- Money saved is compounded in returns.
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Pro Tip
Questrade platform also offers investments in ITF which you can use to save up for your kid’s future. You can open an account and have them as your beneficiary, and when they reach legal age, the fund will be transferred to them. |
4. Oanda
This trading platform offers various global CFD instruments, including indices, forex, cryptocurrencies, shares, commodities, and metals. Over 25 years, Oanda has built an outstanding reputation for innovation, excellent customer care, and transparent pricing.
Features:
- Amazing customer service with 4.5 ratings.
- Zero minimum account deposit.
- No opening fees.
- Outstanding research tools
- Fast and user-friendly account opening.
- Simple and fast deposit and withdrawal.
5. Forex.com
Forex.com is the number one FX broker in the U.S., which offers an extensive range of offerings, from CFDs (Contract for Difference) to spread betting to futures, across several different asset classes, commodities, indices, individual stocks, bonds, ETFs, cryptocurrencies, and futures, to provide trading opportunities for all traders.
Features:
- Low forex fees.
- Great variety of currency pairs.
- Wide range of product offerings.
- It has TradingView charts built into the web platform.
- Offers protection for U.K./E.U. client accounts.
- Rebates for high-volume traders.
- Diverse technical research tools.
- Minimum account deposit of $100.
- Good customer service with 4.4 ratings.
Any of the trading platforms will make your investment journey easy, depending on your needs. With this, due diligence is advised before making your decisions.
Most Traded Commodities in Canada
Commodities trading is a significant aspect of Canada’s financial system, providing investors and traders with opportunities to participate in various markets. By comprehensively studying and understanding commodities, you can better navigate the Canadian market and make informed trading decisions.
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Did You Know?
The most traded commodities in Canada include Copper, Natural Gas, Cotton, Brent Oil, WTI Oil, Wheat, Corn, and Millet. |
The easiest investing approach in commodities in Canada is to buy commodities ETFs. Vanguard, iShares, and Horizon all have broad commodity ETFs for Canada namely:
- Vanguard Materials ETF (VAW)
- Vanguard Energy ETF (VDE)
- iShares S&P/TSX Global Base Metals Index ETF (XBM)
- iShares S&P/TSX Capped Materials Index ETF (XMA)
- iShares S&P/TSX Capped Energy Index ETF (XEG)
- iShares Global Agriculture Index ETF (COW)
- Horizons Gold ETF (HUG)
- Horizons Silver ETF (HUZ)
- Horizons Crude Oil ETF (HUC)
- Horizons Natural Gas ETF (HUN)
Factors Influencing Commodity Prices
Volatility is the daily percentage difference in the price of a commodity. The more comprehensive the price range from low to high on a daily, weekly, monthly, or longer-term basis, the higher the volatility and vice versa.
Several factors can impact the prices of commodities in the financial market:
- Changes in supply and demand for products due to the level of mine production, exploration activities, and global economic conditions.
- Economic indicators like increased GDP, industrial production, and manufacturing activity increase demand.
- Trade policies, tariffs, and geopolitical events can affect commodities prices. Disruptions in international trade or political instability in major commodities-producing regions can impact supply and lead to price volatility.
- Currency fluctuations, mostly in dollars, influence commodities prices. As commodities are priced in dollars, changes in currency exchange rates can impact their affordability and demand.
Bottomline
Commodities are a great way to grow and diversify your investments, but they are prone to volatility. Conducting extensive research before investing is better to ensure your purchase commodity aligns with your portfolio and investment strategy.
Trading commodities in Canada can be an exciting and potentially profitable venture. You can increase your chances of success by continuous education on market behaviour and trade movements and identifying the most traded commodities in Canada.
FAQs on How to Do Commodities Trading in Canada
How much money do you need to trade commodities?
Commodity trading has no fixed capital requirement. It depends on the investment type. You can start with as little as $5 to trade commodity ETFs. However, the brokerage will set the minimum deposit requirement if you trade futures or ETF day trading.
What is the best way to trade commodities?
The best strategy in commodity trading is the scalping strategy, whereby the trader remains in the market for a very short period to mitigate the level of financial risks.
What is the minimum amount for commodity trading?
There is no minimum amount required to start commodity trading. It depends on the type of investment you choose and your risk tolerance.
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