How to trade commodities: Commodity trading tips for beginners in 2024

This comprehensive guide explores the fundamentals of commodity trading. Learn how to trade commodites online and find the best brokers to get started.
Updated: Dec 12, 2023

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The commodity market has attracted investors for centuries and offers the potential for significant returns and portfolio diversification. We’ve made navigating this complex sector easy and you can use this beginner friendly guide to get started.

Learn the fundamentals of commodity trading, including how the market works, the types of commodities you can trade online, and how to get started today.

What is commodities trading?

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Commodity trading involves buying and selling a broad range of raw materials. Traders speculate on commodity price movements using different methods such as futures contracts and CFDs. Unlike traditional investing, traders seek to capitalise on short-term price movements.

Futures contracts are the most popular way to trade commodities. Traders buy or sell futures contracts, to speculate on the future value of a given commodity. 

Can I trade commodities?

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Yes, trading commodities is straightforward and available to anyone using an online trading platform. Commodity trading works very much in the same way as trading other markets like stocks, forex, and crypto. 

You can trade commodities through many different avenues, including spot commodities, futures contracts, commodities options, commodity exchange-traded funds (ETFs), or CFDs. To decide on the best approach, you will need to consider your goals and time horizon before aligning your strategy with your specific objectives.

Where can I trade commodities online?

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If you’re looking to trade commodities, you’ll first need to register with a commodity trading platform. Listed below, our experts have selected some of the top-rated platforms around offering easy access to a whole range of commodities. Simply click the links to register in a few minutes.

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74-89% of retail CFD accounts lose money

Ways to trade commodities

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There are several options available when it comes to trading commodities and the one you should pick depends on your budget, experience, and the timeframe for seeing returns. Here’s a look at the various ways you can trade commodities online.

  • Trade commodity CFDs. Contracts for Difference (CFDs) are a popular way to speculate on commodity price movements without having to own the physical asset itself. This makes them ideal for commodity trading, where it’s not practical to own and store large quantities of commodities. With CFDs, you can profit from both rising and falling prices. CFDs also offer leverage, which can amplify your exposure to commodities markets. 
  • Commodities spread betting. Spread betting is a trading method that allows you to speculate on the price movements of commodities without owning the physical commodity. With spread betting, traders can take positions on whether the price of commodities will rise or fall. You can use leverage when spread betting commodities. All profits are also tax-free. 
  • Trade commodity futures. Futures contracts are the most common way to speculate on short term price changes. They are an agreement to make a trade at a future date for a pre-agreed price. Commodity futures contracts require a detailed understanding of what impacts short term prices, and are most suited to someone with experience in the market.
  • Trade commodity options. Options let you buy or sell commodities contracts at a predetermined price on or before a specific future date. commodities options trading requires some expertise but allows traders to capitalise on price changes and manage risk, which makes it popular with people familiar with the commodities market.

How to trade commodities – a step-by-step guide

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Trading commodities is similar to trading any other asset class like stocks or cryptocurrencies. We asked our commodity experts for their advice on how to get started and you can use the step-by-step guide below to learn how to trade commodities online.

Step 1. Open a commodities brokerage account

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To get started with commodities trading you’ll need to open a brokerage account. We recommend Exness as the best commodity trading platform.

Here you can trade commodity futues contracts on exchanges like the Chicago Mercantile Exchange (CME), the New York Mercantile Exchange (NYMEX), or the Intercontinental Exchange (ICE). You can also access other commodity markets like stocks and ETFs.

Opening your commodities broker account is easy, all you have to do is enter your contact information, choose a username and password, before adding funds.

Step 2. Choose a commodity

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There’s a wide variety of commodities that can be traded, from popular assets like gold and silver, to things like corn and soybeans. Researching different commodities and learning about each one can help make trading them easier.

Step 3. Decide on your commodity trading strategy

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Now that your brokerage account is up and running the next step is deciding on your trading strategy. There are lots of ways you can trade commodities so take the time to find the best option. If you want to invest in commodities you may want to focus on fundamental analysis, while if your preference is to trade commodities, technical analysis could be best.

Step 4. Place buy/sell trade orders

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You can now go ahead and enter your position. Place your commodity trade order with your brokerage account by opening an order ticket for your chosen asset.

You can specify specific information like the price you want to buy, the number of contracts or size of order, and even targets and stop losses. If you trade commodites using leverage, make sure you have the margin available in your account to support your position.

Step 5. Monitor and exit positions

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Use the latest news stories, market data, events, and price action relevant to your commodity investment to monitor your trade. You may want to make changes or keep things as they are depending on how the commodity market is moving.

How does the commodities market work?

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Unlike other financial markets, like stock trading, commodities can be bought and sold at current and future prices. Current prices can be traded using the spot market, and traders can speculate on a commodity’s future price using the futures market. 

The market is also unique in the way entities involved in the production, manufacture, or distribution of commodities often use futures contracts to protect against price changes. By using the futures market, farmers for example can lock in prices today, without having to worry about fluctuations at a date in the future.

What moves a commodity’s price?

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Before you invest in commodities, it’s important to learn the fundamentals of the market and what moves prices. Supply and demand are the biggest determinants of a commodity’s price. For example, if the supply of oil increases, its price will decrease and vice versa. Here’s a look a few of the main drivers in commodity pricing.

  • Production costs. How much it costs to produce a commodity can have a significant impact on its price. Production costs impact all commodities from oil prices to wheat and everything in between. For example, if the cost of growing wheat rises due to higher fertiliser prices, the price of wheat will likely increase as well. 
  • Weather conditions. Weather conditions can play a role in the production of most commodities. Droughts can reduce crop yields leading to higher prices. Flooding and hurricanes can also disrupt supply chains and can cause price spikes. Weather can also impact hard commodities such as gold, albeit to a lesser extent. 
  • Economic growth. The way an economy is growing can influence the demand for commodities, particularly those that are used in industrial production. As economies expand, demand for commodities such as steel, copper, and oil tends to rise. The same applies when economic growth slows. 
  • Government policies. Governments around the world can influence commodity prices through policies, tariffs, and export quotas. It is not uncommon for governments to subsidise farmers to increase the production of certain commodities with the ultimate goal of lowering food prices. 
  • Storage and transportation. Transporting commodities around the world can be expensive, as can storing them. Storing and transportation can significantly impact the price of a commodity. For example, commodities that require specialised storage or transportation facilities such as LNG can have higher prices due to additional costs. 
  • Supply chain disruptions. The availability and price of commodities can be directly impacted by global supply chain disruptions. During the COVID-19 pandemic, supply chains across the globe were affected. This led to a reduction in the supply of various commodities and ultimately a price increase. 
  • Currency fluctuations. Most commodities are priced in USD which means fluctuations in exchange rates can play a role in the price of commodities. If the dollar rises against other currencies, commodities become more expensive for importing countries. 

The factors above cover a broad range of commodity markets. If you’re interested in a certain sector it is a good idea to understand the specific fundamentals. You can use our guides on how to invest in agriculture, how to invest in energy, or how to invest in metals for more sector-specific information.

What are the different types of commodities I can trade?

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There are two main categories that commodities fall under; hard and soft. Hard includes assets that are mined from the earth like gold. Soft commodities include anything grown and harvested, like soybeans and corn. There are four main asset classes all commodities belong to, which we’ve explained in the bullet points below. 

Why do commodities have value?

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Commodities have value for many reasons, and different factors impact each type’s price. One of the main reasons people invest in commodities is to hedge against inflation. When inflation rates are on the rise, it’s common for commodity prices also to increase. Another reason they have value is rising demand. Many of the most popular commodities are used daily worldwide for a range of different reasons. 

For example, corn is one of the most widely farmed crops and is used as a food source and biofuels. Lots of factors can impact its demand, including weather and political issues. Any adverse weather, or political instability, generally positively impacts its price. The same can be said for many of the world’s commodities.  

What are the most traded commodities?

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Not all commodities are worth trading, especially for retail traders who may not have access to knowledge or vast amounts of money. The most popular amongst traders are metals like gold, silver, and copper and the oil market, including crude oil.

In the table below, we’ve listed the most traded commodities on futures markets for last year including the most popular exchange where each one is traded.

Commodity2022 contracts tradedMain exchange
Brent crude oil246,921,939ICE
Copper37,091,448LME / COMEX
Iron ore12,476,340SGX

What are the risks of trading commodities?

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Trading commodities has the potential for significant rewards but also carries risks you need to be aware of. These risks are the same across the overall commodity market, but for certain commodities, several more specific ones apply. Below, we’ve explained the main risks of commodities trading.

  • Volatility. The commodity market is known for its price volatility. Compared to other markets, the price of commodities can widely fluctuate daily. It can be costly if you’re unprepared for the volatile nature of the commodity market. 
  • Macroeconomic factors. Commodities prices are affected by several macroeconomic factors, such as industrial demand, inflation, interest rates, dollar strength, and geopolitics. Before trading commodities, you should have a good understanding of these. 
  • Regulatory risks. Government policies can play a role in the way commodity prices move. Export restrictions or changes in tax regulations could introduce unforeseen risks.
  • Correlation with other markets. Commodities are generally uncorrelated with traditional assets like stocks and bonds. However, they can still exhibit some degree of correlation. This correlation can increase during uncertain economic times. Commodity investors may experience unexpected losses if their portfolio is not adequately diversified. 
  • Adverse weather. The weather can pose a significant risk to commodity traders if unprepared. Droughts can decrease supply as can floods. However, both of these can be predicted by experts to some extent. Hurricanes, earthquakes, and other natural disasters can drastically impact prices, especially if they occur without much warning. 
  • Speculation. The commodity market attracts speculators, or traders looking for quick gains. Speculation can drive prices in both directions, leading to fluctuations that may not be driven by fundamentals. You should ensure your commodity trading strategy can manage speculative trading activity. 

Trading vs investing in commodities

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You can trade or invest in commodities and there are key distinctions between the two. Trading commodities involves a shorter time outlook and focuses on capitalising on short-term price movements. 

Investing in commodities takes a longer-term outlook and investors look for price appreciation over a long period, usually years. Below are a few benefits of trading and investing in commodities to help you decide which is the right option for you. 

Trading commodities

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  • Potential for high returns. The commodity market has high volatility which means traders can enter and exit the market to profit from short-term price fluctuations throughout the day. 
  • Leverage. Many of the best online commodity trading platforms offer the ability to trade with leverage. This means you can enter a larger position without requiring lots of money. You can earn bigger profits when using leverage – or lose too. 
  • Liquidity. The commodity market is liquid, depending on the asset you’re trading. Gold and oil for example are excellent choices for experienced traders due to their high liquidity. This makes it easy to buy and sell throughout a trading day. 

Invest in commodities

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  • Hedge against inflation. You can use commodities to hedge against inflation. This is because the prices of commodities generally tend to rise during periods of high inflation. Commodity investing is a good way to ensure your money is not eroded by inflationary pressures. 
  • Portfolio diversification. One of the best ways to diversify your portfolio is by including commodities. If you’re a long-term investor it makes sense to add assets from various markets to your portfolio. This way your money is spread around and is not at risk of market-specific downturns
  • Long-term potential. Over the long term, commodity prices have shown a positive trend in value. While it is impossible to predict the future, if the past is anything to go by, the future looks positive for the commodity market. Lots of new technology also relies on commodities like silver and lithium, which should help future prices. 

Bottom line

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One of the key benefits of trading the commodity market is the various ways you can get involved. There is a trading vehicle for everyone, from commodity stocks and ETFs for long term speculators to spot commodities, futures trading, and CFDs for short term traders. A trusted and regulated trading platform is a must if you want to navigate the commodity industry successfully.

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