Thinking about buying commodities but don’t know where to start? We’ve compiled a how to list that allows you to compare the top commodities brokers for 2020 and beyond. We help you find commodities brokers with reasonable price quotes, good leverage, variety of tradable commodities, the lowest spreads and transparent, properly regulated trading conditions.
Our guide to commodities trading takes you through all the key criteria and explains the terms you need to know. Ready? Let’s go.
Where can I find the best commodities trading platforms?
Right here! Our website enables you to shop for the best commodities trading CFD platforms, listing all the most important selection criteria at a glance. The most desirable platforms are regulated by top regulatory agencies, have intuitive platforms that make it easy to open an account and make deposits, and don’t charge exorbitant fees.
What are commodities brokers?
Commodities brokers are individuals, online platforms, or mobile apps which allow you to buy or sell commodities. The best broker platforms make it easy to make trades, giving everyday investors the same access to markets for oil, gold, and other commodities that big financial institutions have.
What is commodities trading?
Commodity trading is the buying and selling of basic goods and raw materials by individuals and institutions. Examples of commodities include gold, silver, oil, wheat, corn, cryptocurrency and many others. The goal of commodities trading is to buy a contract at an attractive price, then sell it at a higher price to make a profit. By trading commodities online, you gain access to global markets and can trade without needing a huge bankroll.
How do broker platforms work?
Broker platforms enable clients to buy or sell commodities either online or via a mobile app. One trading method that has grown in popularity in recent years is the contract for difference (CFD) platform. CFD offers traders the ability to make money off movements in commodities prices, without having to own any actual barrels of oil or gold bars. CFD platforms use live price data, and automate the old, outmoded ways of traditional commodities trading.
So I don’t technically ‘own’ the assets I’m trading on a commodities platform?
Technically, no, you don’t own the assets. Instead you own a contract that can be traded online, eliminating the hassle and security problems that come with trying to store, say, a barrel of oil or a bar of gold. You can trade these contracts quickly and seamlessly online, even buying and selling the same contract on the same day if you wish. For example, you could buy £100 worth or gold, then sell it for £110, thus making a 10% profit. That profit might occur within a matter of weeks or days, even hours or minutes.
What should I look for in a commodity broker service?
When shopping for the best commodities trading platform it pays to do your homework and find the platform that checks as many of the boxes below as possible.
- Find a regulated platform – Regulatory agencies impose sets of rules on specific broker platforms. Those rules include various safeguards for customers, such as making sure brokers have adequate capital, and auditing them to ensure compliance. In the United Kingdom, that agency is the Financial Conduct Authority (FCA).
- Variety of payment methods – Make sure you select a commodities platform that allows you to trade with a payment method that suits your needs. Typical payment methods for commodities trading include credit and debit card, bank transfers, wire transfers, and PayPal.
- Suitable deposit and withdrawal limits – Deposit and withdrawal limits will vary from platform to platform, so make sure you pick an online commodities platform that suits your level of activity as a trader. As an example, IG, one of the biggest CFD trading platforms, lets you deposit up to £20,000 per day if you’re funding your account by card. For larger payments, IG recommends using bank transfers. On the flip side, the minimum withdrawal amount for an IG account is £100 or the available account balance, whichever is lower.
- Good reputation – The best commodities brokers, like the best restaurants, should come with positive user reviews. Other ways to verify a platform’s reputation include awards, accolades, and positive publicity.
- Design and ease of use – You want a platform that makes trading as quick and easy as possible. One, because you don’t want to get confused and make the wrong trade. And two, because if you’re trying to buy or sell a commodities contract at a given price, you’d like to execute your trade as quickly as possible, to minimise potential price fluctuation.
Will I have to verify my broker account?
Yes. You need to verify your account to comply with financial service regulations. Verification will usually involve providing proof of identity and proof of address. This is often an automated process that simply requires you to upload a couple of documents such as a valid passport or driving license. In some cases, you might be required to take and upload a selfie too, for facial recognition purposes.
Is online commodities trading secure?
Yes. Reputable commodities trading CFD platforms use many of the same digital safeguards that you’ll find in a typical stock account run by a big brokerage like TD Ameritrade or Charles Schwab, to guard against hackers. Regulatory agencies provide further security by closely monitoring CFD platforms in places like the UK. Also, CFD platforms let you trade commodities without owning actual assets. So for instance, if you were trading gold contracts, you wouldn’t need to worry about the security or storage of your gold, because you’re only betting on the price movement of gold, rather than holding any actual gold yourself.
What if I forget my password?
Just like other online platforms, commodities trading accounts will allow you to reset your password using your email address and/or password recovery questions. Make sure to choose a secure password (ideally using non-common words, at least one capital letter, at least one digit, and at least one punctuation mark), so that others can’t access your account.
Can I trade multiple commodities contracts using brokers?
Yes, you can trade multiple commodities contracts on one platform. For instance, you could go long on gold (betting that its price will go up) and sell short on oil (betting that its price will go down) at the same time.
Do contract for difference (CFD) trading platforms charge fees for commodities trades?
That depends. If you’re holding regular commodity trades, there will often be fees for keeping your trades open overnight or over weekends. There can also be withdrawal fees. That said, with the rise of cryptocurrency as a payment option, many historical fees are no longer applicable.
What are the advantages of using a CFD platform for trading commodities?
With CFD trading, you can capitalise on the fluctuating prices of commodities. Trading on a CFD platform also enables you to use leverage when making trades, which is when you borrow money from a broker to give yourself a bigger position than you might be able to get solely from the money in your account. That way if the price of a commodity goes in the direction you’ve bet, you’ll make a bigger profit than you would if you’d only invested your own money. CFD platforms also enable you to sell a commodity contract short, meaning you’re speculating that its price will fall. Finally, CFD platforms let you make all of these trades without actually owning any physical amount of gold, oil, cryptocurrency, or other commodities.
And what are the drawbacks?
Buying any asset using leverage, be it commodities, stocks, or others, comes with increased risk; if you bet wrong, you’ll owe a lot more than you would had you only invested your own money. Also, leaving positions open on CFD platforms can increase the costs you’ll have to pay. Generally speaking, CFD trading requires a higher level of expertise than more conventional investment platforms; the majority of retail investors who trade on CFD platforms end up losing money.
Should I use a CFD trading platform?
That depends on your goals, and your risk tolerance. If you want to trade commodities like oil or cryptocurrency quickly and easily without worrying about keeping those assets safe from hackers, and you’re fluent in the ins and outs of CFD trading, it can be an excellent choice.
Can I use a CFD platform on my mobile phone?
Yes. Most CFD trading platforms allow you to trade commodities on easy to use mobile apps.
Is CFD trading the best way to buy and sell commodities?
Yes, because you can trade commodities quickly on CFD platforms, either go long or short on trades as you see fit, and avoid the hassle and security risk that comes with owning the actual asset you want to trade. Just remember: the majority of retail investors who trade on CFD platforms lose money. Make sure you’re intimately familiar with how online trading works before you dive in. One sensible strategy when starting out is to avoid trading with leverage, and to avoid investing more than you can afford to lose.
Is online commodities trading legal?
Yes, although some commodities and platforms are illegal in certain countries. For instance, CFD trading is banned in the United States, so should you wish to trade commodities contracts in the United States you need to go through an exchange like the Chicago Mercantile Exchange, buy shares of exchange-traded funds that specialise in commodities or buy shares of stock in companies that produce commodities. On the other hand, CFD trading is legal in the United Kingdom. If cryptocurrency is your commodity of choice, note that trading it is legal in some countries, and illegal in others. Review the laws in your country before taking the plunge.
Can I transfer from a CFD trading account into my PayPal account?
Yes, CFD platforms that trade commodities will usually allow deposits and withdrawals to and from PayPal accounts.
What if my chosen broker platform closes down while I have open trades?
If you’re a UK citizen using a commodities trading CFD platform regulated by the FCA, you should be covered for at least some of your losses under the Financial Services Compensation Scheme. Then again, this can depend on the size and leverage level of your trades. The maximum level of compensation covered by the Financial Services Compensation Scheme is £50,000. The rules can vary dramatically in other countries. Check the laws in your country to be certain.
Is using a CFD platform anonymous?
No, using a commodities trading CFD platform is not anonymous. You have to provide proof of ID and address to verify your account. However, you are usually anonymous to other users, depending on whether or not the platform you’re on uses social features or not.
Are there minimum and maximum deposit/withdrawal amounts?
Minimum deposits and withdrawals tend to range between £25 and £100. Maximum limits have a much wider range. They usually depend on the trading platform and payment method you’re using to trade commodities. On the IG platform you can withdraw up to £20,000 using a card. If you use a bank transfer, six-figure withdrawals are permitted.
Are there trading limits?
Trading limits also depend on the platform you’re using. As a general rule, the limits tend to be £10,000 or higher.
Can I access my full trading history on a CFD platform?
Yes. On a CFD platform you’ll be able to see a complete list of all your past commodities trades.
Is it easy to switch CFD platforms?
Yes. You are not contractually obligated to stay with any one platform, and you can switch as you please. If you’re trying to gauge which platform is best for you, you can even start by trading on multiple commodities trading platforms at the same time, until you decide which one you like best.
Can deposits be made in cryptocurrency or just fiat currencies?
It is possible to find commodities trading CFD platforms that accept deposits in cryptocurrency, such as LiteForex and FXChoice, to trade commodities. But despite the growing acceptance of cryptocurrency around the world, many platforms still require that deposits be made in fiat currency (GBP, USD etc.).
Do I have to pay tax on any profits made through CFD trading of commodities?
In the UK, if you make a large amount (more than £11,700 in the course of a year) then you will have to pay a capital gains tax of 10% to 28% on earnings above that amount. You won’t have to pay any income tax. In other countries, the laws will be different, so be sure to check the tax laws on commodities trading wherever you live.
Are CFD platforms regulated?
In the UK, CFD platforms are regulated by the FCA. But that’s not necessarily the case for all platforms, or all countries. Do your research when shopping for a commodities trading CFD platform, and try to choose regulated platforms if possible.
Is it possible to short on CFD platforms?
Yes, it is possible to engage in both short and long selling of oil, gold, and other commodities on CFD platforms, depending on which way you see the price of a commodities contract going.