In this beginner’s guide to financial markets, we now look at trading commodities — from crude oil and gold to coffee and corn. You’ll learn the key methods, platforms, and strategies used by retail traders and professionals alike.
How to Start Trading Commodities
There are several ways to trade commodity markets:
- Futures contracts – The most direct form of commodity trading. You agree to buy or sell a specific amount of a commodity at a future date for a set price.
- CFDs (Contracts for Difference) – Speculate on price movements without owning the physical commodity.
- ETFs (Exchange-Traded Funds) – Invest in a basket of commodities or track the price of a specific one (like gold).
- Options – Derivatives that give you the right, but not the obligation, to buy or sell at a certain price.
Retail traders typically use CFDs or ETFs through online brokers, avoiding the complexities of futures and physical delivery.
Popular Commodities to Trade
- Gold: Known for its safe-haven appeal and strong reaction to inflation, interest rates, and geopolitical risk.
- Crude Oil (Brent and WTI): Driven by OPEC decisions, supply-demand imbalances, and global growth expectations.
- Natural Gas: Highly seasonal and sensitive to weather patterns and storage data.
- Corn, Wheat, Soybeans: Agricultural commodities influenced by harvest forecasts, climate events, and global demand.
Trading Commodities Platforms
Commodities can be traded through major online trading platforms such as MetaTrader, TradingView, or proprietary broker platforms. These provide real-time data, technical indicators, and tools to place trades, manage risk, and analyse trends.
Always choose a regulated broker with transparent fees and access to the markets you’re interested in.
Key Strategies for Trading Commodities
- Trend following: Using moving averages or momentum indicators to trade in the direction of the prevailing trend.
- Range trading: Identifying key support and resistance levels in sideways markets.
- Breakout trading: Entering trades when price breaks out of a key range or chart pattern.
- News-based trading: Capitalising on sudden movements triggered by geopolitical events or inventory data (e.g. US oil stockpiles).
Managing Risk
Commodity markets can be extremely volatile. Price moves can be sharp and unexpected, particularly in energy and agriculture. Risk management is essential:
- Use stop-loss orders to limit potential losses
- Control position sizing relative to your account balance
- Avoid overexposure to highly correlated commodities
- Always trade with a clear plan and risk-to-reward ratio
Factors That Impact Commodity Trades
Understanding the unique factors that influence commodities is vital. For example:
- Weather patterns can severely impact crop yields
- Geopolitical conflict may disrupt oil supply chains
- Central bank policies can affect gold prices via real interest rates
Stay informed with up-to-date news and data reports such as EIA oil inventories, crop reports, and OPEC meetings.
Final Thoughts
Trading commodities offers opportunities across a range of asset types. With their global relevance and diverse price drivers, they can add both excitement and complexity to your trading strategy.
As part of this beginner’s guide to financial markets, commodities round out your understanding of key instruments beyond stocks and forex. Ready to test your knowledge? Up next – the course quiz!