How to trade commodities online

Commodities are vital assets and help power the global economy. In this beginner friendly guide, learn how to trade commodities online.
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Updated: Feb 17, 2022

This page teaches you how to trade commodities and what you need to consider if you want to become successful. We explain what commodities are, offer a step-by-step guide on how to trade them, and explain how the commodity market works. Continue scrolling to learn more. 

Compare the best platforms to trade commodities

If you’re looking to trade commodities, the first thing you’ll need to do is register with an online broker. 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.

1
Min. Deposit
$ 10
Promotion
User Score
10
Up to $240 bonus!
Award-winning trading platform
Regulated and trusted broker worldwide
Start Trading
Payment Methods:
Bank Transfer, Wire Transfer
Full Regulations:
CySEC, FCA
eToro is a multi-asset platform. 68% of retail investor accounts lose money when trading with this provider. You should consider whether you can afford to take the high risk of losing your money.
2
Min. Deposit
$ 0
Promotion
User Score
9.5
World's biggest online bullion market
High-security vaults based Zurich, London, Toronto, Singapore and New York
Next-day withdrawals
Start Trading
Payment Methods:
Full Regulations:
3
Min. Deposit
$ 10000
Promotion
User Score
9.5
Quotes for precious metals 24hrs
Secure storage in Switzerland
Physical gold and silver (high-quality bullion bars and coins
Start Trading
Payment Methods:
Full Regulations:

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

Trading commodities is similar to trading any other asset class like stocks or cryptocurrencies. Below is a step-by-step guide to help get you started. 

  1. Identify what kind of trader you are. You may prefer to be a day trader and take many trades throughout the day, or a longer term trader where you trade less frequently. Either way, it’s a good idea to decide your approach prior to trading. Considering how much you are prepared to risk is also a good first step to take.  
  2. Choose a commodity. 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.  
  3. Set a budget. Having a budget before you start trading is always a good idea. You may want to allocate a small amount of your portfolio to one specific commodity. It goes without saying to never risk more than you can afford to lose.
  4. Find a trading platform. Not all brokers offer all commodities, so choosing one that fits your requirements is a good idea. A broker is the platform through which you buy and trade commodities. There are a lot of them, and each one offers its own unique features. Use the table above to find one that works for you.
  5. Conduct technical analysis. Most traders use some form of analysis before taking any trades and usually technical analysis is most helpful, especially for shorter term traders. You can check out our free courses here and learn the basics of technical analysis. 
  6. Decide whether to go long or short. Before you make any trades, you’ll need to decide on whether the price of your chosen commodity will go up (long) or down (short). You’ll then be ready to click the buy or sell button.
  7. Set limit orders (optional). You can use stop-loss orders to mitigate risk and lock in any profit. These are simply pre-arranged orders that automatically execute once a certain price level is hit. Limit orders are another function you can use, which automatically opens or closes a trade when a price level is reached. 

What are commodities?

Commodities are tangible assets, natural resources, or agricultural products used in human activity. They impact the global economy and have various uses, including food production, energy, and transportation. Some commodities are naturally occurring, such as oil and wheat, while others are processed goods such as chemicals and orange juice. 

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. 

  • Agriculture. These are commodities grown for human consumption and include things like wheat, corn, soybeans, sugar, coffee, and cocoa. 
  • Energy. Commodities belonging to this asset class are extracted and used for energy production. The most popular include oil, natural gas, heating oil, and coal. 
  • Metals. Assets including gold, silver, platinum, copper, and lithium are metal commodities. They are mined from the earth and have a range of uses.
  • Livestock. As the name suggests, livestock includes all live animals, such as cattle and hogs. 

What is commodity trading?

Commodity trading involves buying and selling a broad range of raw materials. Traders speculate on commodity price movements using different methods such as options and CFDs. However, futures contracts are the most popular way to trade commodities. Traders buy or sell futures contracts, making bets on the future value of a given commodity. 

Commodities play an essential role in everyday life and have a long history of trading, which began in the mid-1800s. Today, the commodity market offers traders a broad range of instruments to speculate on 24 hours a day, five days a week. Further below, we’ve explained the different methods you can use to trade commodities. 

How does the commodities market work?

It works like most other markets, with supply and demand contributing to the prices of each commodity. Although, a range of varying factors impacts each type of commodity’s price. For example, weather plays a vital role in many agricultural commodities, while global inflation levels affect metal commodity prices. 

Unlike other financial markets, like the stock market, 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 different ways to trade commodities

There are a few different ways to trade, and below are the most popular ones with a brief description of each.

  • CFDs. Contract for differences is a popular way to speculate on the short term price movements of a range of commodities. CFDs are simply a contract between a buyer and seller and are especially popular with retail traders due to the high levels of leverage offered by online brokers. By using a CFD, it’s important to remember that you do not own the underlying asset. 
  • Futures. These are the most used way to speculate on commodities and are an agreement to make a trade in the future at a pre-agreed price. Futures trading requires a deep understanding of what impacts the market and is typically best suited to experienced traders. 
  • Options. Options are similar to futures contracts and are a way to speculate on futures price movements, although they differ in the mechanics. Options give a trader the right to buy or sell at a future date rather than an obligation as with futures. Like futures contracts, options are best suited to a trader with detailed knowledge of how they work. 
  • Stocks. It is possible to gain exposure to commodities while trading stocks. Many companies operate as commodity businesses, for example, gold miners or oil drillers. Buying and selling shares of commodity-related companies gives traders a way to trade without buying a specific commodity. 

Why do commodities have value?

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. Below we’ve explained what impacts the price of two of the most popular commodities to trade. 

  • Gold. Multiple factors drive the price of gold, and it’s one of the most popular commodities to hold long term as it’s often used as a hedge against inflation. The amount of gold held by central banks, the value of the U.S. dollar, and demand all impact its price. 
  • Oil. Oil is widely used worldwide and one of the most traded commodities. Its price is largely linked to its supply and demand. However, the worldwide oil supply is controlled by a group of oil producing nations called OPEC. Its demand is driven by everything that uses oil, like cars and the airline industry. Although, a rise in clean energy also impacts oil demand. 

What are the most traded commodities?

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. Below, we’ve listed the most traded commodities according to their group. 

  • Agriculture. Coffee, corn, cocoa, and soybeans.
  • Energy. Crude oil, natural gas, and heating oil. 
  • Metals. Gold, silver, and copper. 

Is commodities trading right for me?

It could be, but it depends on many factors. Commodity trading requires a lot of time, especially if you focus on day trading. You’ll need to consider if you can read price charts, formulate a strategy, conduct fundamental analysis, and have the patience to buy and sell frequently. However, commodity trading could be a good option if you have the time. 

Other ways to make money from commodities are to either invest long-term or buy some in their physical form. Investing is an easier and more realistic option for most people. It requires less time and can provide substantiation returns. Buying physical commodities is difficult as there are many things to consider, such as fees and storage. 

Should I start trading commodities now?

If you think you’re ready, then yes, it could be a good time to start trading commodities now. This guide has provided some information and tips on getting started; however, learning more about commodities would be helpful. Here at Invezz, we offer free courses on commodities and a range of other financial assets, which you can check out on our learning hub. You’ll also need to register with a broker, which you can do so by clicking the button below.


Sources & references
Risk disclaimer

Invezz is a place where people can find reliable, unbiased information about finance, trading, and investing – but we do not offer financial advice and users should always carry out their own research. The assets covered on this website, including stocks, cryptocurrencies, and commodities can be highly volatile and new investors often lose money. Success in the financial markets is not guaranteed, and users should never invest more than they can afford to lose. You should consider your own personal circumstances and take the time to explore all your options before making any investment. Read our risk disclaimer >