How to Trade Commodities

Commodities are the materials that are the foundation of an economy. This includes things like oil, grain, lumber, gold, gas, and corn. We have a whole section of our website dedicated to commodities trading.

How does it work?

Investors can trade in commodities in several ways, including:

  • Investing in a “future” in that commodity – This is a contract that promises you will buy or sell a particular amount of a commodity at a certain price at a date in the future. (If you’re an individual with a futures contract, you’ll need to trade it to someone else before it becomes due so that a truck doesn’t come and drop 12 tons of corn on your driveway!)
  • Investing in an ETF or fund – There are a number of funds that invest in companies that use or produce particular commodities or that track the price of the underlying commodity.

What are the risks?

  • Volatility – Commodity prices can vary drastically in very short periods of time (for example, the price of oil dropped by over half in 2014-15); this can introduce a very high level of risk.
  • Instability – Emerging markets, worldwide financial news, and many other factors can significantly impact the prices of commodities.
  • Speculative – Most individual investment in commodities is at best speculative. Typically, individual investors won’t have enough information to know how much the price of a commodity is going to rise or fall over a specific period of time.

If you want to trade commodities, what can you do?

Commodity trading isn’t recommended for new investors.

If you want to invest in commodities directly, you will normally need a specialized brokerage account that will let you trade in commodities futures.

We recommend Plus500 – one of the most recognized brands in the market and customers can get $20/€25 to start trading (T&Cs Apply). They offer a CFD (contract for difference) service which allows you to speculate on the price of a commodity. This is a high-risk option though and you should bear in mind that your capital is at risk.

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Elizabeth Goldman is the editor of AlternativeInvestmentCoach.com. She has written for Investing.com, Bullbearings.com and many others.