What are commodities and how do you trade them? (2024)

FAQs

What are commodities and how do you trade them? ›

A commodity is a basic good traded in large volumes and interchangeable with other goods of the same type. Commodities are either for immediate delivery in spot trading or for conveyance later when traded as futures. Commodity markets deal in metals (aluminum, copper, gold, lead, nickel, silver, zinc, etc.)

Trading in commodities is very similar to buying other assets, such as stocks. If you decide to open a long position and the price of your chosen commodity rises, you will be able to close the trade and make a profit. Price moves in commodity markets can be long-term in nature.

Commodities are raw materials used to manufacture consumer products. They are inputs in the production of other goods and services, rather than finished goods sold to consumers. In commerce, commodities are basic resources that are interchangeable with other goods of the same type.

In this article, we will provide a list of 15 commodities to trade. Commodities can be divided into four categories: energy, metals, agriculture, and livestock. Energy commodities include crude oil, natural gas, and gasoline. Metals include gold, silver, copper, and platinum.

Investors can trade commodity-based futures, stocks, ETFs, or mutual funds, or they can hold physical commodities such as gold bullion. Three of the most commonly traded commodities include oil, gold, and base metals.

Commodities are raw materials used to create the products consumers buy, from food to furniture, to gasoline or petrol. Commodities include agricultural products such as wheat and cattle, energy products such as oil and natural gas, and metals such as gold, silver, and aluminum.

a substance or product that can be traded, bought, or sold: The country's most valuable commodities include tin and diamonds.

Commodities are bought and sold on exchanges, like stocks. Well-known exchanges include the Chicago Mercantile Exchange (CME), New York Mercantile Exchange (NYMEX) and London Metal Exchange (LME).

Trading in commodity is a short-term investment, especially if the futures contract comes with an expiry. A stock market is where investors buy and hold their assets for a longer period.

Crude oil ranks as one of the most traded commodities in the world. Commodity traders who had taken long positions on crude oil last year made a lot of money. Crude oil prices decreased in 2020 as a result of COVID-19 and the consequent global lockdowns. However, the rate of immunisations increased in 2021.

What commodity is traded most? ›

Brent Crude oil is the most traded global commodity. Brent Crude is extracted from the North Sea and accounts for two-thirds of global oil pricing. Like the other crude oil benchmark WTI, Brent Crude is mainly refined into diesel fuel and gasoline. Brent Crude is generally slightly more expensive than WTI crude oil.

Traders buy and sell physical commodities. The profitability of these activities depends on the difference between the prices of the transformed and untransformed commodities, rather than their level.

Commodity traders often act as speculators and attempt to make profits on small movements in commodity prices, gaining exposure through futures contracts. These traders go long if they believe prices are moving higher and short the commodity when they expect prices to fall.

Unlike stock trading or investing in mutual funds or ETFs, commodity trading offers tremendous leverage. In trading commodity futures, you typically only have to put up about 10% of the total contract value. This enables you to make much higher percentage gains with your trading capital.

Futures contracts.

These contracts are perhaps the most well-known method for investing in commodities. Futures contracts have price-mechanism transparency, and you can access a commodity futures contract for a small fraction of its value, but there are risks involved.

You can trade commodities using different instruments such as contracts for difference (CFDs), futures and options contracts, stocks, or in some cases like precious metals, buying and selling physical products.