Commodities Trading

Commodities are a diverse asset class frequently used to hedge in investment portfolios or to generate profits in speculative trades. Comprising everything from trading oil to orange juice, the commodities business is not always easy for beginners to learn, but there are rich rewards for those who do. This guide will serve as an introduction to trading commodities, listing the different types of assets, how they are traded, and popular strategies. We also list the top commodities brokers in 2025.

List of Top Commodities Brokers

What Are Commodities?

In trading, the term ‘commodity’ usually refers to raw materials or basic products that are used for manufacturing purposes. Precious metals like gold and silver are also classed as commodities, regardless of whether they are used to make other products or held as a store of value.

Some of the best-known commodities are oil, gold and wheat, but the list of commodities on offer at the best brokers is long and there is a roaring trade on things like butter, pepper and even orange juice.

In general, commodities can be divided into three basic categories:

• Metal assets include gold and silver, but also everything from nickel to palladium.
• Energy assets such as oil, natural gas and coal, but also fuel and other products derived from these raw materials.
• Agriculture assets comprise a long list of crops and livestock produced in the agriculture sector, from beef and milk to soybeans and cotton.

Another way commodities are often defined is as ‘hard’ or ‘soft’ commodities:

• Hard commodities are usually natural resources that are extracted from the earth through mining, drilling or a similar process. Hard commodities include: Gold, Silver, Palladium, Platinum, Natural Gas, Nickel, Copper, Oil, Iron, and Zinc.
• Soft commodities are products such as grains, meat and dairy products that are produced by the agricultural sector. Soft commodities include: Soybeans, Orange Juice, Live Cattle, Lean Hogs, Corn, Rice, Wheat, Coffee, Cotton, Butter, Sugar and Cocoa.

Popular Commodities

The range of commodities traded by professionals is nearly endless, but usually, those available to the retail market is more limited. Below are some examples of the most popular commodities offered by online brokers:

Gold

Humans have been mining, trading and hoarding gold since time immemorial, making it one of the best-known commodities. Gold trading is an attractive prospect for both traders and investors as its status as a store of value means its price will often move in the opposite direction to the rest of the market.

Crude Oil

Crude oil is one of the driving forces of the world economy as it is both a primary energy source and the raw material used in countless industrial and manufacturing processes. The crude oil benchmarks are Brent crude and US West Texas Intermediate crude, and the main producers are the United States, Saudi Arabia and Russia.

Oil is a popular commodity among traders, who favour its highly liquid market and look to benefit from the profit-making potential of its high volatility.

Oil prices are highly tuned in to the global economy as a whole – as was evident during the early stages of the Covid-19 global pandemic in 2020, when oil prices in the US sank to negative figures due to the sudden drop in demand.

Soybeans

As one of the most popular agricultural products in developing countries such as China, the soybean market has been steadily growing over the years and trade in this commodity has also increased.

Soybean prices are usually tied to the price of other agricultural crops such as wheat, and factors such as weather can have a strong impact. The USA dominates the soybean trade, and the Chicago Mercantile Exchange is the main marketplace for this commodity.

Commodities Trading For Beginners

Commodities trading is big business, and many of the big investors who take part are either involved in producing the commodities or products made from them, or professional traders who specialise in this field. Firms such as JP Morgan, Macquarie and Atlantis Commodities have dedicated commodities traders and advisors in offices around the world, from London to Hong Kong and Singapore.

Retail traders and investors are likely to access commodities markets through online brokers. The most popular commodities will be available to trade through a wider range of brokers, with many forex brokers including gold and silver on their asset lists and other trading platforms offering oil and other key commodities.

Another common way for the retail market to gain exposure to commodities markets is through shares in companies, indices or ETFs that deal with this asset class. This could involve shares in a company that is directly involved in producing the commodity – a gold mining company, for example – or in an ETF or index that tracks sectors more generally. Traders can choose from numerous ETFs with exposure to precious metals, agricultural goods, energy commodities and so on.

Investing Vs Trading

Much of the retail market prefers to take a more relaxed approach to investing, picking assets they think will grow in the long term and then sitting back. These investors might pick up gold or silver to hedge against inflation or a market downturn, or they may look into ETFs or indices linked to a commodity they feel has the potential to do well in the mid-to-long-term.

On the other hand, traders looking to actively make trades to profit from price movements will be able to do so on any commodities available to them through a broker. Retail traders often speculate on commodity prices through derivatives, such as CFDs, particularly if they can be traded with leverage.

How To Trade Commodities

There are numerous ways to trade commodities, and some are better suited to retail traders than others.

Spot Trading

Traders place buy and sell orders for commodities on the spot market. Since this can involve taking physical possession of the commodity, it is often unviable for the retail market unless through a derivative.

Futures

One of the most common ways of trading commodities is through futures. Futures contracts are an agreement to trade an asset at an agreed price on a predetermined date when the contract expires.

Futures usually have a high capital requirement and will often involve taking possession of the asset when the contract finishes, making them less popular among retail traders.

Options

Options contracts work in a similar way to futures, but traders pay a premium for the right but not the obligation to purchase the asset. This means they can limit their potential losses to the price of the option.

CFDs

Contracts for difference or CFDs are an agreement between the broker and contract buyer to pay the difference between the asset’s price at the start and end of the contract. If the trader predicts the price movement correctly, the broker will pay them; otherwise they will have to pay the broker.

CFDs do not require the buyer to take possession of the asset, making them a great option for retail traders. The availability of leverage is another advantage as it boosts the profit potential of a smaller position.

Spread Betting

Another good option for the retail market, spread betting works in a similar way to CFDs, with the profit or loss of a trade determined by the amount the spread moves past the asset’s price at the beginning of the contract.

Spread betting brokers usually provide leverage, and UK traders can often benefit from the tax exemption to profits from spread betting trades.

Binary Options

Some retail traders favour binary options for their simplicity – they are a straightforward bet on whether a commodity asset’s price will rise or fall in a given timeframe, with potential profit or loss determined at the beginning of the contract.

Trading Tips

No one strategy will work with all assets, and traders should take the time to research the market of the specific commodity or commodities they want to trade. Here are some common features that will help you learn to trade your commodity of choice:

• Volatility: Many commodities are known for their volatility, and this brings both opportunity and risk. Sharp traders can benefit from price swings, but these can also lead to heavy losses.
• Supply/demand: Supply and demand are among the most important factors in determining a commodity’s price, and each asset’s supply and demand will be influenced by different factors that traders should carefully research.
• Producers: While some commodities are widely produced around the world, all commodities have major producers and anything that affects these countries will have a stronger impact on the commodity’s price.
• Politics: Trade agreements, wars, embargoes; there are numerous political news events that can have a big impact on commodity prices if they hit producer countries or those with high demand.
• External factors: Every commodity’s price will be affected by external factors that affect production or demand. Unseasonably cold weather might reduce crop production or raise demand for natural gas, for example.
• Correlations: Some commodities tend to rise with other commodities or with the market in general, others such as gold and silver will often see increases when the market is weak. Learning these dynamics can give traders an edge.
• Technological advances: Demand for many commodities is tied to new technologies, which might either raise demand if they require a certain raw material for production or dampen demand if they overtake an existing technology that did.

Trading Strategies

Trend Following

Retail traders often profit from one of the simplest strategies, which involves identifying the general direction a price is moving and executing trades accordingly.

Trend following is relatively simple to do using basic charts and indicators, but commodities traders should also keep up with news events to identify good times to sell.

Range Trading

Like other assets, the price of commodities will often fluctuate between a lower limit known as support and an upper limit of resistance over a given timeframe.

Traders who identify these limits can profit by buying when the price reaches support and selling at resistance levels.

Breakout/Reversal

When a commodity’s price drops below support or breaks past resistance, this can indicate a change in the predominant trend, which can be an opportunity to make a significant profit.

How To Learn Commodities Trading

Not all traders have the time or the means to attend a commodities training course, but there is a wide range of ways that retail traders in the UK can learn about trading commodities.

Beginners can get to grips with the basics by reading a commodities trading book. This can be a good way to learn the definitions of certain terms or the meaning of specific concepts associated with trading commodities. Many websites such as this one also offer information on these topics. You can also ask for advice on commodities from trading groups on forum sites, or check out videos on YouTube to learn about strategies used by other traders.

The next step is to find commodities brokers with demo account software to practice them. The best demo account will allow traders to use a real trading platform to make risk-free trades with virtual money at live market prices, making this in effect a perfect simulator of commodities trading.

Trading Hours

The hours depend on the specific commodity being traded, with some being traded 24 hours. Here are the trading hours of two of the biggest exchanges in the UK:

• London Metal Exchange: 11:40–15:00 GMT
• Intercontinental Exchange: 24-hour

Bear in mind that commodities brokers may follow their own schedules for assets, and even if trading for a particular commodity is open 24/7, the market will still be more active (and more liquid) during certain hours.

UK Regulation

Most of the time, trusted commodities brokers will be regulated by the appropriate body in their specific jurisdiction.

In the UK, this is the Financial Conduct Authority (FCA). In the US, many brokers will be covered by the Commodities Futures Trading Commission (CFTC).

Bottom Line On Trading Commodities

Commodities trading is a broad and diverse field, with assets to suit every kind of trader and investor – though the added risk of volatile markets may make commodities a challenge. Many who focus on different asset classes will dip into commodities for hedging purposes or if they spot an opportunity for profit. There are also a great many who specialise in trading in a certain commodity or set of commodities and get to know the respective markets inside out. Whichever path you choose, be sure to do the research, choose a good broker and develop effective commodities trading strategies.

Head to our ranking of the top UK commodities brokers to get started.

FAQs

What Is Commodities Trading?

The term ‘commodities’ generally refers to raw materials that are mined or otherwise extracted from the ground, or crops that are grown by the agriculture sector. Commodities trading is simply the act of buying and selling these goods, either directly on the spot market or using financial derivatives including futures, options, and CFDs.

Commodities trading is a huge business with a massive volume of goods sold around the world each day, and it’s no wonder – the goods bought and sold on commodities markets are used in huge quantities in industry, manufacturing, construction and even to keep our homes warm.

How Do You Get A Job Trading Commodities?

Professional commodities traders for big firms in financial centres such as London, NYC, Chicago, and Singapore make big salaries, but they have to earn them. The largest firms will hire talent with a background in economics or finance, either through academic training courses and graduate schemes, through previous work experience such as internships, or both. These firms are often interested in technical forms of trading such as quant trading, and they may involve quite complex concepts that are usually taught at degree level. Finding a job at a commodities trading desk in one of these companies is likely to also involve an interview process with challenging questions to prove you know your stuff.

Fortunately, online brokers provide the retail market with access to commodities trading without having to jump through all these hurdles, and with a good demo account, you can learn the ropes while actively trading at no risk to your wallet. These brokers are the choice of retail commodities traders in the UK and around the world.

What Is The Role Of Forwards And Futures In Commodities Trading?

Forwards and futures contracts play a huge role in the commodities trade around the world, and in fact, these were the first derivative contracts ever to be traded. These derivatives are vital to producers and consumers of commodities since they can serve as a guarantee, ensuring that they are able to buy and sell the goods at a price that does not put them out of business. Forwards and futures are also useful for speculative purposes, and many traders use these contracts to place bets on the direction a commodity’s price will move.

Is Commodities Trading Halal Or Haram?

Commodities trading is one of the cornerstones of the world economy, and many Muslim countries are influential centres of this trade. The UAE and Saudi Arabia, for example, are well known for their power in the global oil market.

Nevertheless, if as a practising Muslim you have doubts over whether trading commodities is halal or haram, you should speak to a knowledgeable religious expert who you trust and seek their advice on the matter.

How Is Commodities Trading Different To Stock And Currency Trading?

For retail traders, commodities trading will often work in much the same way as trading stocks and forex as most of the time all of these assets will be accessed through the same online brokers.

The main difference between commodities vs stocks and forex in the UK is the amount of leverage on offer – commodities are often capped at 1:10 for the retail market, whereas forex pairs can go as high as 1:30.

Further Reading

Further Reading