The first category is raw material. This category would include gold, silver and crude oil. The second category is agricultural product, such as corn and coffee.
The trading method you want to use, such as a CFD The broker’s experience with the commodity you are interested in Other factors such as pay-out dates, etc.
Your choice of trading method will decide how much money you must invest. For instance, if you wish to invest in a commodity worth $1,000, using leverage to purchase a CFD would mean paying out a fraction of the full $1,000. In comparison, using standard trading methods would require an outlay of the full $1,000. On top of your investment, you will incur broker fees. Here are a few options for trading commodities. Always do further research before deciding on the best on for you. If you are interested in using an app to trade, read Top 10 Stock Trading Apps for more information. It operates across 19 commodity markets. Its patented software CopyTrader puts the trader in control, providing you with the opportunity to copy top-performing trader portfolios. eToro customers can take advantage of an online community of traders too. 80.2% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money. Founded in 2010, Pepperstone has been quick to adapt to the social copy trading trend, providing plenty of tools for traders to share and mimic trading styles. With over 1,200 instruments, it offers two account types:
Standard – The Standard account comes with market average spreads and zero commission Razor – This account operates on a commission basis but with exceptionally low spreads
Pepperstone does not have its own platform but offers the complete MT4, MT5 and cTrader solutions, as well as supporting DupliTrade for copy trading. They normally recommend a minimum of 100 - 200 USD to start trading. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 78.8% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money. XTB offers investors and traders the opportunity to trade commodities, stocks, metals, forex, indices and cryptocurrencies, as well as ETFs and CFDs, and it is regulated in top-tier jurisdictions by FCA, CySEC, IFSEC and KNF. Traders can easily open an account online and can choose between the commission-free Standard account or the Pro account that includes tighter spreads, but there is a commission that needs to be paid on all trades. Deciding what platform to use to make your trades depends on your location – in most countries, you can choose MetaTrader 4 or the proprietary platform xStation (although MT4 is not available to UK customers). XTB is a great choice for beginners thanks to the huge range of educational materials, categorized by level (beginner, intermediate and advanced) and the customer service options that are available only on weekdays. There is a fully functional demo account so beginners can practice strategies and get used to using the platforms. The more experienced trader will enjoy a huge range of research resources, including trading signals, technical analysis, details about different instruments, and even a heat map and market sentiments. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Its strong points include:
No minimum first-time deposit No commissions Several payment methods for deposits and withdrawals Tight spreads from 0.5 pips
It offers one of the best execution speeds in the industry with low latency below 0.004s. It utilizes the most advanced technology to improve users’ trading efficiency – users can automate trades, build integrations and create trading apps using ActivTrades’ market-leading CFD and spread betting technology. Exceptional trading infrastructure is available on ActivTrader and MetaTrader 4 and 5. ActivTrades invests deeply in specially developed educational materials for its clients – including webinars, regular outlooks, manuals, etc. Type of offers: ActivTrades focuses on well-developed products in its trading portfolio. Customers can choose from over 1,000 CFD or spread betting instruments across forex, indices, shares, commodities, financials and ETFs. It also offers investing solutions for its institutional partners. Spread betting allows UK residents ONLY to trade the prices of financial instruments, including forex, indices, commodities and LSE shares. Spread betting and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread betting and CFDs work and whether you can afford to take the high risk of losing your money With Moneta Markets, you can trade CFDs on top commodities like oil, gas, coffee and even orange juice. There are three trading accounts available, depending on whether you want to pay a commission and get tighter spreads or have the trading costs built into the spread. This means that True ECN accounts have a commission cost of $6 per lot, but spreads that start at 0 pips on Forex, while STP and Prime accounts have the fees built into the spread. With Moneta Markets, traders can choose to use MetaTrader 4 and 5, as well as the proprietary WebTrader and AppTrader platforms (available for web and mobile use respectively). MT4/5 are well known great platforms for traders with outstanding research, tools and algorithmic trading available. The proprietary platform has a simple user interface. While that is great for beginners, there is not as much depth in the platform for those who are more advanced. Trading tools are not integrated, and both the mobile and web app could do with some updating to be as reliable and usable as other proprietary platforms offered by similar brokers. There is a demo account available, which allows traders to practice their strategies and work out how best to use all the functions of the platform. The research on the platform is almost entirely third-party – other than the Moneta TV YouTube channel which has daily market briefings. However, if you are using the MetaTrader suite there is a lot of research and analytics available through Trader Central, so the lack of in-house research on the Moneta Markets platform might not be too much of a problem. There is an extensive Masters Course, which is a series of more than 100 videos that are suitable for beginners through to advanced traders, covering many topics and in different categories and they can be viewed and used completely independently. The customer service on Moneta Markets is available 24/5, through email, phone and live chat.
In practice, Admirals is a broker that offers several forex and CFD trading instruments in most currencies. Founded in 2001, Admiral Markets is regulated by JSC, FCA, EFSA and CySEC, and offers traders access to both MetaTrader 4 and 5, with the opportunity to have several active accounts with different base currencies to take advantage of price instability. With Admirals, you can trade CFDs on oil, agriculture, gold, and others with investments starting from 50 EUR. There is also an opportunity to trade commodity futures CFDs as well, although you are not able to directly buy the commodities. There are several account types available, depending on the platform that you want to use. On MT4, you can choose a standard account known as Trade.MT4. The minimum deposit for this account is 100 USD/EUR/GBP or equivalent, and you can trade 37 currency pairs as well as metal, energy, future, stock and bond CFDs. In this account, the trading fees come from the spread, apart from with single share or ETF CFDs, which have a standard commission of 0.02 USD. The Zero.MT4 account offers tighter spreads, with more currency pairs (45) but fewer CFD options. The commission on forex and metal CFDs is 1.8 to 3 USD per lot, cash indices are 0.5 to 3 USD per lot, and energy CFDs are 1 USD per lot. If you prefer the upgraded MT5, you can also have an Invest.MT5 account, alongside the Trade.MT5 and Zero.MT5. MetaTrader 5 accounts have access to more trading instruments in both Trade and Zero, but the Invest.MT5 is designed purely for buying stocks and ETFs, with more than 4,350 stocks and 200 ETFs available and a minimum deposit of 1 EUR/USD/GBP. Deposits are free using bank transfer, card, PayPal or Klarna, but there is a 0.9% fee (or $1 minimum) for deposits made using e-wallets like Neteller or Skrill. You can have one free withdrawal a month as a bank transfer, but two if you use PayPal or e-wallets. Admirals is available as a trading app on mobile as well as web and desktop, and the user interface and real-time trading that is available across platforms offer a seamless user experience. The research and analytics are extensive, with technical and fundamental analysis alongside trading news, market sentiment and a market heat map. Access to MetaTrader Trading Central and a weekly trading podcast is also provided. Admirals takes learning seriously with two separate courses aimed at beginner traders. The Zero to Hero course consists of 20 video lessons, a Q&A and a live session as well as a well-crafted trading strategy. Forex 101 is a three-stage course to take beginners through to experts using a structure that includes a video lesson with detailed notes and a quiz to check knowledge. Forex & CFDs are complex products, not suitable for everyone and come with the high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
1. Gold
Gold is one of the most regularly-traded commodities and is a precious metal that is continually in demand. Gold is rare, increasing its competitive demand, at an estimated 170,000 tonnes worldwide. Used widely in the jewelry trade, gold is also purchased as an investment in its bar and base form and used to a lesser extent in industry. Gold is mainly sourced from China, Russia, and Australia. As a commodity, the value of gold generally remains unaffected by inflation or geo-political factors and is hence seen as one of the safer commodity investments.
2. Silver
Another precious metal, as a commodity, silver shares many of the attributes of gold:
Rare and therefore in high demand Used in the jewelry trade and industry Generally seen as a safe investment
However, due to the greater percentage of the silver supply that is used in industry, for instance, for solar panels, it may be more greatly affected by economic downturns.
3. Crude Oil
The first of the fossil fuels on our list, crude oil is not simply a source of energy. It can also be used for:
Petrochemicals Production of textiles Production of fertilizers Production of steel Lubricants Plastics
So, while green energy becomes increasingly popular, crude oil is likely to continue to be in demand for the foreseeable future. The greatest price driver of crude oil is supply and demand, and the factors that most affect crude oil pricing are geo-political and economic developments.
4. Natural Gas
The second of the fossil fuels in this article, natural gas is used as an energy and fuel source. It too relies on supply and demand to arrive at a price but is a rarer material and more expensive to source than crude oil. Unlike crude oil, the price of natural gas is often driven by our weather conditions; colder weather, for instance, creating a higher demand for natural gas and therefore driving up the price. Again, in the face of the increasing popularity of green energy, the demand for natural gas may be affected.
5. Copper
With its ability to conduct heat and electricity and its resistance to corrosion and the effects of the weather, copper has many industrial and manufacturing applications:
Electrical wires Piping Roof tiles Industrial machinery As part of an alloy
Copper is widely available and one of the most used metals globally. Both supply and demand are therefore high. With the high demand for copper in industry, the factor that most greatly affects the price of copper is the health of the local and global economy.
6. Coffee
Currently one of the most volatile agricultural commodities on this list, coffee is widely consumed and produced. The major producers of coffee are Brazil, Vietnam, Colombia, Indonesia and Ethiopia. Numerous factors affect the price of coffee:
Political and economic turmoil in the producing countries Weather conditions and their affect on coffee bean crops Transportation costs, which may, in turn, rely on the price and availability of oil The US dollar rate Public opinions towards the consumption of coffee
7. Soy Beans
Soy beans are widely used, high in protein and inexpensive to produce. The main producers are the Brazil, China, Argentina and India. Besides their basic use, soy beans are also instrumental in the production of:
Animal feed Meat substitutes Soyabean oil A substitute for milk Biodiesel
Factors that may affect the price of soy beans include weather conditions, demand for the products that soy beans are used to create, and the price of the US dollar.
8. Iron Ore
Iron ore is widely available and a relatively easy commodity to mine. Historically, supply has matched demand, lending iron ore a relatively stable price. However, the recent urbanization of China and its increased demand for iron ore to manufacture steel has led to a shortage of iron ore in comparison to demand. This has driven up the price in 2020. Iron ore has a wide range of uses:
Cast iron Steel production Magnets Industrial catalysts
9. Corn
As with soy beans, corn is widely produced and used, and its price is dependent on the demand for the products it is used to create. Corn is used to make:
Food products Animal feed Biofuel Industrial products
The price of corn may also be affected by environmental conditions and the effects on the corn crop, and the price of the US dollar.
10. Steel
Steel is created from iron ore and carbon, and on occasion, other elements such as manganese and tungsten. It may also be recycled through electric arc method furnacing. It is relatively inexpensive to produce, strong and used in a wide variety of applications. Generally, the price of steel has been dependent on economic output but other factors that may affect its price include:
The price and availability of its constituent parts; for instance, iron ore Geo-political developments Developing technologies
Commodity values are generally based on supply and demand, a factor which you can monitor to predict the rise and fall of a commodity value and hence whether to buy or sell. There are several ways to invest in commodities, the most commonly-used methods being standard buying and selling, futures contracts and CFDs. In uncertain and turbulent times, certain commodities are more likely to retain their value regardless of external factors. This generally makes them a safer investment. Commodity prices can vary greatly, swinging from high to low on a regular basis, and therefore can provide you with the opportunity to make generous profits. Commodities can provide an excellent way to diversify your portfolio.
Factors to Consider When Choosing a Commodity to Trade
Commodities may provide an excellent option for your trading portfolio but how do you decide which are the best ones to trade? When making your decision, consider the following factors:
What is the liquidity of the commodity? How easy is it to buy and sell the commodity? How high or low is the supply and demand of that material? If you buy this commodity, are there sufficient traders available to buy from you at the price you want to sell at? What is the related geo-political environment? For instance, is the supply of a commodity low because of an ongoing war in the country that is the main supplier of that commodity, or have economic sanctions been enforced on one of the main suppliers? What is the future of this commodity? For instance, in the case of fossil fuels, these may become scarce in the future, reducing the supply – which could increase the demand. But they may also become less popular as green energy sources (such as solar power) are taken up by consumers and manufacturing methods move away from the use of fossil fuels, hence reducing the demand. What trading method do you want to use? Are you interested in futures contracts, CFDs or standard trading where you buy the commodity now and sell it when you can make a profit?
Read Stocks vs CFDs: The Key Differences to find out which investment method best suits your needs. Considering all of the above factors will demand a high level of research and ongoing assessment by you as a trader. It is always recommended that you take professional advice from a suitable broker to support your research and knowledge. WikiJob does not provide tax, investment or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor, and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.
