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.

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.

Comparing Commodities Brokers

While a large number of brokers offer access to major commodities like gold, silver and oil, there are fewer that offer a more comprehensive range of hard and soft commodities to retail traders.

Here are some of the main features UK commodities traders should look for in a broker:

• Fees are among the most important factors for any commodities trader, as they have a direct impact on the potential to make a profit. Commodities brokers often make their money from the spread and/or commission, but they can also charge fees for things like account maintenance and withdrawals.
• Trading platforms are key as they act as a terminal through which traders analyse charts to plan and execute trades. Many brokers offer their own proprietary platforms, but third-party platforms like MetaTrader 4 (MT4) or MetaTrader 5 (MT5) are also popular.
• Regulation is important in a commodities broker, but fortunately, the sector is well-regulated in the UK, so you should be able to easily find an FCA-regulated broker with good safety measures, including negative balance protection and segregated accounts.
• Range of assets is vital for retail traders who want to trade a variety of commodities. Does the broker offer gold, silver, oil and natural gas, for example?
• Payment methods can make a difference to traders since transfer options have different transaction times, levels of privacy and potential charges. E-wallets like PayPal and Skrill often provide fee-free and fast deposits and withdrawals.
• Demo accounts are a good way for UK retail traders to practice trading commodities without risking real cash. They can also be an effective way to test-drive potential commodities brokers.
• Added features such as copy trading, robots and signals can improve the trading experience for those who do not have a lot of time to spend reading commodity price charts. They can also be a good way for beginners to learn from established investors.
• Leverage is useful to retail traders as it magnifies the trading power of a small amount of capital through margin trading. In the UK, the FCA allows commodities brokers to offer leverage of up to 1:30 depending on the volatility of the asset, with commodities usually permitted up to 1:10 leverage.
• Mobile apps help traders execute commodities trades at the time of their choosing, wherever they are. The top trading apps also integrate with desktop trading terminals for a seamless investing experience.

Pepperstone – Commodities Trading Conditions

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.

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