In this beginner’s guide, we cover everything there is to know when learning how to trade commodities. This includes an overview of top commodity trading platforms, how commodity trading works, and why you should trade commodities.
Commodity trading is less popular than other types of trading, such as forex or equity. However, it has become an excellent avenue for portfolio diversification in recent years. Commodities, such as gold, oil, and natural gas, are an excellent way to hedge your portfolio against traditional markets. They are also ideal for short-term trading strategies thanks to their volatility and speculative nature. However, commodity trading can be complicated, especially for newer traders.
How To Trade Commodities – Five Quick Steps
Trading commodities can be a very simple process when using a beginner-friendly platform like eToro. This low-cost commodity trading site give you access to a wide variety of commodity trading markets alongside free USD deposits and small account minimum investment.
For a quick overview of how to trade commodities online , follow the step-by-step guide below.
- Step 1 – Choose A Commodity Trading Platform: The first step is to select an online broker that allows you to trade commodities. One of the best platforms in the market for commodity trading is eToro. The eToro platform offers a large selection of commodity markets at low fees. Opening an account with eToro is simple and can be done in minutes.
- Step 2 – Deposit Funds: The next step after opening your account is to deposit funds. The minimum deposit on eToro to start trading commodities is just $10 for US-based clients. There are no deposit fees on USD payments. The eToro account can be funded through bank transfers, debit/credit cards, PayPal, and ACH. The platform also supports other payment types.
- Step 3 – Do Your Research: Commodities are known to be quite volatile. Before placing a trade, ensure that you conduct your research. There are several factors to consider, such as demand, supply, geopolitical events, and other economic indicators.
- Step 4 – Choose Commodities to Trade: Once you are ready to begin trading, use the eToro search bar to search for the commodity you wish to trade.
- Step 5 – Trade Commodities: To begin trading, you must enter the amount you wish to invest in the chosen commodity. Once entered, place your order by clicking the “open trade” button.
Your capital is at risk. 68% of retail investor accounts lose money when trading CFDs with this provider.
The above guide offers a quick insight into how commodity trading works. With that being said, you will find a much more detailed tutorial on how to trade commodities further down on this page. Keep reading!
Where To Trade Commodities – Best Brokers Reviewed
One of the first steps that you will need to take is to decide where to trade commodities in terms of choosing a regulated broker.
Commodity trading is far more complex than buying stocks. We highly recommend going through this guide in its entirety before you start your trading journey. Today, most of the prominent online brokers offer support for stocks. However, the same cannot be said for commodities.
Even if a platform offers support for commodity markets, it is vital to determine the financial instrument they are represented by. This could be futures, options, or ETFs. You must also consider the fees that are applied when trading commodities, along with account minimums.
Taking the above factors into account and to make things easier, we have made a list of the best places to trade commodities online and where you can learn how to trade commodities.
1. eToro – The Best Platform To trade Commodities
eToro is our pick for the best platform to trade commodities for beginners and experienced investors. At eToro, US-based clients can access commodities that can be traded through ETFs. These include ETFs that track the price of gold, silver, oil, and several other commodities.
eToro also allows users to trade gold through a plethora of financial instruments. These include stocks, CFDs, ETFs, and through its Copy Portfolios feature.
US-based clients can also access commodity markets through relevant stocks. All commodity ETFs and stocks on eToro are traded at 0% commission with competitive spreads. Additionally, the minimum investment is set at a reasonable $10. Should you wish to diversify into overseas commodity stocks and ETFs, you can still benefit from eToro’s 0% commission.
Alternatively, if you are based outside the US, the best way to trade commodity on the eToro platform is via CFDs. When trading Commodity CFDs on eToro can be leveraged or short-sold.
eToro offers several charting tools and technical indicators to its clients. These can help traders predict the future value of the chosen commodity. eToro offers its copy trading feature and tools for beginners in the commodity trading space. This allows traders to copy trades of highly successful and verified traders on eToro. Once you select a trader, you can copy their investments into your portfolio.
However, copy trading requires a minimum outlay of $200, but no additional fees are levied. Alternatively, you can access smart portfolios on the eToro website. These are managed and rebalanced on your behalf. Apart from ETFs, stocks, and other commodity-centric markets, you can also purchase crypto on eToro.
Once your trading account has been funded, you might also look to invest in cryptocurrency markets like Bitcoin, Ethereum, Dogecoin or Shiba Inu and dozens of leading altcoins. Additionally, the eToro platform also offers the most secured crypto wallet in the market to store your crypto.
Opening An Account On eToro
Opening an account on eToro is straightforward and can be done in minutes. You will be required to submit some personal information when creating your account. Clients based in the UK and US need to make an initial deposit of just $10. Clients outside of these regions are required to deposit $50. Remember, payments made in USD do not attract a deposit fee. You can complete the registration process and begin trading online or via the eToro app, available on Android and iOS.
eToro currently boasts over 30 million users and is regulated by several regulatory bodies. These include the CySEC, ASIC, and FCA.
- Overall Best Place to trade commodities
- eToro offers low trading commissions
- It is highly regulated
- USD deposits do not incur any fee
- Offers CopyTrading tools
- Mobile app to trade commodities and other markets
- Supports several deposit methods such as bank transfer, debit/credit card, and e-wallets
|Debit Card Fees
|Free for US-based clients
|$10 for US/UK clients, $50 for others
|Types Of Markets
|Offers commodity-centric ETFs, stocks, and CFDs.
|No commission on commodity ETFs and stocks.
Your capital is at risk. 68% of retail investor accounts lose money when trading CFDs with this provider.
2. TD Ameritrade – Allows Users To Trade Hard & Soft Commodity Futures
TD Ameritrade is a good broker when learning how to trade commodities for the first time. The platform allows traders to trade hard and soft commodities through futures. TD Ameritrade offers several metals, such as gold, silver, copper, platinum, and palladium.
The platform is also an excellent option for traders trading in energies. The platform supports futures markets on crude, WTI, Brent oil, natural gas, RBOB gasoline, and heating oil.
The commodity trading platform also offers soft commodities such as coffee, cocoa, cotton, orange juice, and sugar. However, it is essential to remember that TD Ameritrade is a platform for more experienced commodity traders. The futures markets on the platform are settled with physical commodities. Furthermore, the ThinkorSwim trading suite has highly complex trading tools, features, and indicators. These will appeal to traders seeking complex fundamental and technical analysis indicators.
Fees On TD Ameritrade
Now, let’s look at the fees on this commodity trading platform. TD Ameritrade offers futures at a price of $2.25 per contract. As a trader, you don’t need to pay routing or clearing fees. However, exchange and other regulatory charges do apply to trades. Account opening on TD Ameritrade is a relatively long process. As a result, opening an account on the platform can take several days. Traders should keep this in mind when opening an account on the platform.
- The platform offers several commodity options trading and supports ETFs
- Offers competitive margin funding rates
- Allows traders to trade hard and soft commodities through futures
|Debit Card Fees
|Debit cards not supported
|$0 on self directed accounts
|Types Of Markets
|Futures, Options, and ETFs
|Starts from $2.25 per contract
3. Interactive Brokers – Global Commodity Trading Platform
The next platform on our list of the best place to learn how to trade commodities is Interactive Brokers. Interactive Brokers is a popular trading platform serving millions of users in the US and other countries.
Traders on the Interactive Brokers platform can access markets and exchanges in over 33 countries and 25 currencies. Traders looking to trade commodities on Interactive Brokers can do so through futures and options contracts. The most traded commodities on the platform are gold, silver, oil, natural gas, and agricultural products.
However, fees on Interactive brokers are slightly complicated. Commissions are dependent on the chosen account type and the marketplace. However, futures can be traded at just $0.85 per contract. This is one of the most competitive rates available in the entire market. Like TD Ameritrade, Interactive Brokers offers traders a highly advanced trading suite. This may present a problem to beginners and casual brokers.
However, this platform is ideal for traders looking to access advanced features. This includes technical indicators, screeners, customizable charts, and real-time data feeds.
- Offers traders several commodity trading accounts
- The platform has an excellent reputation among users
- Users can trade futures starting at just $0.85 per contract
|Debit Card Fees
|$0 on self-directed accounts
|Types Of Markets
|Mutual funds, Futures, Options, ETFs
|Starts from $0.085 per contract
4. WeBull – Buy And Sell Commodity Stocks At 0% Commission
One of the best ways to trade commodities is via the spot markets. WeBull is another hugely popular online broker, giving traders access to spot commodity markets via stocks and ETFs. The online broker supports thousands of US-listed markets across NASDAQ and the NYSE. Moreover, the platform does not charge any commission on any markets it supports.
The minimum trading requirement on the WeBull commodities platform is just $5. This is separate from digital currencies that require a minimum trade of just $1.
WeBull also allows traders to access stock options. This allows traders to trade the future value of commodity-centric stocks without taking ownership. As a result, traders can access a significant amount of trading capital. Another major benefit of WeBull is its large selection of advanced charting tools. This includes technical and economic indicators, along with fully customizable pricing screens.
WeBull also offers users a dedicated trading app, which is quite popular among its US-based clients. The app offers convenient simplicity and an optimized interface for Android and iOS. Creating an account is relatively straightforward, and you can deposit funds via ACH for free. Bank wire transfers are charged at $8 and $26 for deposits and withdrawals, respectively. However, there is no minimum deposit requirement on the platform.
- The platform does not have a minimum deposit requirement
- Users can trade stocks and ETFs from as low as $5
- Ideal for both beginners and advanced traders
|Debit Card Fees
|ACG deposits are free. Bank wire transfers attract an $8 fee.
|No minimum deposit requirement
|Types Of Markets
|Commodity-centric stocks, ETFs, and options
|0% commission on all markets.
5. Schwab – Allows Traders Access To A Range Of Commodity Futures Markets
If you are looking to trade commodities for the long term via a top-rated trading platform, you might want to consider Schwab. This is because the platform gives you access to spot and future trading markets.
Schwab is a platform ideal for advanced traders seeking exposure to the global commodity markets through futures. The platform’s US-based clients can access a range of commodities across three primary categories,
- Agricultural products
The categories include various products such as gold, oil, natural gas, corn, wheat, sugar, and several others.
Fees On Schwab
Now, let’s take a look at the fees on the platform. Charges on Schwab start from $2.25 for each futures contract traded. Minimum order sizes depend on the commodities being traded and the type of account that you have selected. The platform also has low margin requirements within its online commodity trading futures platform. This means traders can enter positions with much more than they have available.
The platform comes with highly sophisticated technology and advanced tools. Apart from these, the platform also offers commodity trading charts, economic indicators, and profitability calculators. It also offers market insights and a rich selection of educational content. Besides commodity mutual funds, Schwab offers access to traditional stocks and ETFs, index funds, and more. Moreover, standard self-directed accounts on Schwab do not have a minimum deposit requirement.
- The platform offers commodity-centric mutual funds
- Offers a huge range of commodity futures and options
- There is no minimum deposit requirement on standard self-directed accounts
|Debit Card Fees
|Does not support debit cards
|No minimum deposit on self directed accounts
|Types Of Markets
|Mutual funds, futures, and options
|Starts from $2.25 per contract
What Is A Commodity Market?
Before we begin the full tutorial on how to trade commodities, we must understand commodity markets. Commodity markets are marketplaces that facilitate purchasing, selling, and trading primary products and raw materials. Commodities can primarily be divided into two broad categories.
- Hard commodities
- Soft commodities
Hard And Soft Commodities
Hard commodities are resources that are mined or extracted. Examples of hard commodities are gold, rubber, and oil. On the other hand, soft commodities refer to agricultural products such as coffee, sugar, livestock, wheat, sugar, and similar products. But how do these markets work?
Commodity markets allow producers and consumers of commodities to access them in a centralized, highly liquid marketplace. Consumers and producers can also use commodities derivatives as a hedge against future consumption. These markets also see investors, arbitrageurs, and speculators play a crucial role.
Commodities such as precious metals act as a hedge against inflation. Moreover, a broad set of commodities also helps investors diversify their portfolios. Commodities are an excellent option during extreme volatility or market uncertainty. Until a few years ago, trading commodities required significant experience, time, and money. This is why it was primarily done by more experienced traders. However, there are several avenues for beginners and casual traders to train commodities today.
Types Of Commodities Markets
Let’s look at the types of commodity markets before moving on our full steps of how to trade commodities in 2024. Commodities generally trade in derivatives markets or spot markets. Spot markets are physical markets or cash markets. Here, buyers and sellers exchange physical commodities, taking immediate delivery.
On the other hand, derivatives markets involve futures, forwards, and options. Let’s understand these a little better. Forwards and futures are derivatives contracts. These use the spot market as the underlying asset.
These contracts give the owner control of the underlying asset at some point in the future at a price agreed upon today. Physical delivery of the asset or commodity can be taken only when the contract expires. However, traders often roll over or close out their contracts to avoid taking deliveries. Forwards and futures are nearly the same except for minor differences. Forwards are customizable and can be traded over the counter. Meanwhile, futures are standardized and are traded on exchanges.
Commodity trading is highly complex and dynamic, giving investors several opportunities to profit. However, it also comes with several risks. This is why it is vital to understand the trading basics and select the right commodity broker.
History Of Commodity Markets
The history of trading commodities is as old as humanity itself. At the dawn of civilization, tribes would trade and barter with one another. These tribes would exchange food, supplies, and other items. This is the first instance of “commodity trading.” Commodity trading predates stocks and bonds by centuries. The rise of Rome and Greece can also be attributed to their ability to set up a complex trading system. This facilitated the exchange of commodities across continents via the famous Silk Road.
Today, commodity trade takes place on a gargantuan scale. Trading has also become more complex with the introduction of exchanges and derivatives markets. Exchanges are crucial in regulating and standardizing commodity trading in these markets. This results in highly efficient and liquid markets.
Modern Commodity Markets
So what about modern-day commodity markets? Among the most influential commodities markets operating today is the Chicago Board of Trade. The Chicago Board of Trade (CBOT) was established in 1848 and initially traded only agricultural commodities. These included wheat, soybeans, corn, and other agricultural products.
Today, CBOT lists options and futures contracts on a range of products. These include gold, silver, US Treasury bonds, and energy products. In 2007, CBOT added interest rates and equity index products to the group’s existing offerings. Meanwhile, some commodity markets have merged or gone out of business. For example, the Chicago Mercantile Exchange (CME) acquired three other commodity exchanges.
First, it acquired the Chicago Board of Trade in 2007. After that, it acquired the New York Mercantile Exchange and the Commodity Exchange Inc.
Examples Of Commodity Markets
Major exchanges in the US trading commodities are domiciled in New York or Chicago. However, several other exchanges are located in other areas of the country. Commodities traded on CBOT include gold, silver, corn, soybeans, rice, oats, wheat, and others. The Chicago Mercantile Exchange trades commodities such as feeder cattle, milk, butter, cattle, pork bellies, lean hogs, and more.
Meanwhile, the New York Mercantile Exchange trades commodities such as gold, silver, oil, copper, platinum, heating oil, and electricity. Prominent international commodity exchanges include the London Metal Exchange and the Tokyo Commodity Exchange.
How To Trade Commodities: Overview
Commodity markets and commodity trading are a highly complex niche of the larger global investment industry. Let’s try and explain it in simple terms. The idea behind commodity trading is to speculate on the future value of a commodity, for example, gold. If you predict the future price movement correctly, you make a significant profit.
The commodity trading industry is divided into three primary segments. These include metals, energy, and agricultural products. This gives traders several options when searching for that perfect trading opportunity. Most commodities trade 24/7. However, access to these markets depends on the exchange that the chosen instrument is listed on.
The most popular ways of trading commodities in the US are through futures and options. Clients based outside the US can access spot trading markets through leveraged CFDs. Commodity valuations depend on demand and supply, like traditional stocks and cryptocurrencies. However, price movements are heavily influenced by several external factors. These include economic indicators and geopolitical events. For example, the situation in Ukraine has led to oil prices reaching record highs.
How Does Commodity Trading Work?
So, how does commodity trading work? There is a lot to learn and understand when talking about trading commodities. This is especially true if you are a casual trader or a beginner and it’s your first time in the market. But don’t worry, we’ve got you covered.
This section of our guide will cover the key fundamentals of commodity trading. We will also discuss the factors you need to remember and consider before starting your trading journey.
Types Of Commodity Trading Markets
As mentioned above, commodity trading is split into three primary markets. These are energy, agricultural products, and metals. Let’s look at some of the most traded commodities in each market.
- Metals – Gold, Platinum, Silver, Palladium
- Agricultural Products – Corn, Wheat, Coffee, Sugar
- Energies – Natural Gas, Oil, Heating oil
Now that we have an idea of the commodities traded in each market let’s move ahead. Trading commodities and making consistent profits require an intimate understanding of the markets. If you are learning how to trade commodities, it is best to focus on one particular asset, such as oil. This will allow you to understand what factors can influence the price of your chosen commodity better. As such, you will be able to approach the markets confidently.
Commodity Trading: Futures vs. Options
Let’s assume you are a trader with some experience in financial derivatives like futures and options. As such, this could be an excellent avenue for you to access the global commodity markets. For those unaware, futures and options allow you to speculate on the value of hard and soft commodities. However, you don’t have to take ownership of the asset upfront.
You can trade commodities on margin. This means you can access a lot more capital than what is available in your brokerage account. Let’s understand this with an example. If you are trading gold at 20%, a $10,000 stake will require an outlay of just $2000.
Additionally, futures and options allow you to choose from long or short positions. As a trader, you can profit from rising and falling commodity prices. Now, let’s look at the differences between futures and options. The differences primarily center around the financial obligations once the contract is settled.
- In commodity futures, traders are legally obligated to settle the contract once it expires. If you trade physically settled futures and fail to cash out before expiry, you must take delivery of the commodity.
- On the other hand, options don’t require traders to buy or sell the commodity upon expiry of the contract. This gives traders far greater flexibility. If a commodity trade does not go as planned, traders only lose the premium paid to execute the position.
Both futures and options are highly complex to understand, especially if you are a beginner. However, you can consider the following assets that we will discuss in our guide on how to trade commodities.
Commodity Trading: Stocks ETFs, And Mutual Funds
If you are a complete beginner, avoiding complex financial derivatives such as futures and options is best. Instead, you can consider stocks or ETFs relevant to the commodity market you wish to trade in. For example, you can take advantage of increasing global energy prices by adding oil stocks to your portfolio. Oil companies offer some of the best dividend stocks when it comes to yields.
You can also consider ETFs if you want a greater correlation between your investment and the spot price of a commodity. Several ETFs are physically backed by silver bullion. This means the price of the ETF will rise and fall with that of silver. Alternatively, you can also invest in a mutual fund that tracks a specific commodity. However, unlike ETFs, mutual funds actively buy and sell commodities intending to outperform the market.
You can trade commodities through stocks or ETFs on eToro without paying any commission. Additionally, the minimum investment is just $10.
Contracts-for-differences (CFDs) are the most convenient way to trade commodities. This is because CFDs mirror the value of commodity spot prices in real-time. It’s just a case of predicting when the market will rise or fall. Sadly for US-based traders, CFDs are banned in the US. However, if you are based outside the US, you can trade commodity CFDs on platforms such as eToro.
eToro supports several markets across all three types of commodities (energy, metal, and agricultural). You can easily enter an order with a long or short position. Additionally, you can also trade commodity CFDs with leverage on the platform. Overnight financing fees are transparent and competitive.
Your capital is at risk. 68% of retail investor accounts lose money when trading CFDs with this provider.
How To Make Money From Commodities Trading?
One important point to remember when learning how to trade commodities is its primary objective. The main objective is to assess if the price of a particular asset will rise or fall. How you can achieve this goal depends on the financial instrument chosen: futures, options, stocks, CFDs, or ETFs. Let’s look at how you can make money from commodity trading through a quick example.
- Let’s assume you are trading commodities for the first time. As a result, you decide that commodity-free ETFs are your best option to access the market. You decide to choose eToro as your broker.
- Now, you get to your market research. After completing your market research, you conclude that gold is undervalued.
- You decide to invest $2000 in the SPDR Gold ETF. This ETF is physically backed by gold bullion.
- Your prediction ends up being correct. Increased global demand has resulted in the SPDR Gold ETF registering an increase in value.
- Since you made your investment, the SPDR Gold ETF has registered a 20% increase in value.
- At this point, you decide to cash out.
- Since your stake was $2000, the 20% profit results in gains of $400 on the investment.
Remember that when investing in secondary markets to speculate on commodities, two instruments will never be correlated like-for-like. For example, gold spot prices could register an increase of 30%. However, the chosen ETF may register an increase of 25% in the same period.
Why Should You Trade Commodities?
Let’s look at some of the main benefits of trading commodities.
Excellent For Short Term Trading
Commodities are not ideal for long-term investments. Commodities like gold and oil are highly volatile and operate in a cyclical market. This means these and other commodities can go through bullish and bearish cycles. Whether the markets are bullish or bearish depends on factors such as demand and supply and geopolitical events.
However, commodities are your best bet if you prefer day or swing trading. Because commodity markets are volatile, there are ample opportunities for you to access and make profitable trades.
Suited For Fundamental Analysis
When trading the short-to-medium-term value of forex or crypto, the focus is primarily on technical analysis. This means you need to know advanced charts and technical analysis. These could take a considerable amount of time to understand. However, the prices of commodities are dictated by external factors and are easier to evaluate.
For example, we have already talked about the Ukraine situation. This has led to sanctions on the Russian economy, one of the largest suppliers of fossil fuels. As a result, oil and natural gas supply has been impacted, leading to record-high prices. Because commodity prices depend on external factors, even beginner traders can profit handsomely. All they have to do is accurately predict the market and stay abreast of global and geopolitical developments.
Hedge Against Stock Markets
Another reason why trading commodities is a good strategy is because they act as a hedge against traditional markets. More often than not, there is a correlation between commodities such as gold and the S&P 500. Let’s understand this correlation with the help of an example. If the broader stock markets are down, the S&P will register a significant decline. As a result, investors will flock to commodities such as gold to hedge against this decline.
When the stock markets recover, gold suffers as capital makes its way into equities. This is why gold is the best-performing asset during recessions such as the 2008 crisis.
Trade On Margin
In most cases, commodity brokers enable you to trade on margin. This means you have only to put up a small percentage of the total trade value upfront. This can be achieved when trading futures and options. If you are based outside the US, this can also be done on CFDs. Trading commodities on margin can significantly amplify potential gains. However, you must remember that the same applies to potential losses as well.
Commodity Trading Hours
To trade commodities, you must enter a position on the exchange the market is listed on. As such, the trading hours depend on the exchange you must access.
For example, you can trade oil futures for 24 hours per day. However, certain restrictions may be enforced depending on the exchange. Trading hours can also be impacted by the commodity broker you select.
Commodity Price Movements
When global demand for a commodity increases, the price goes higher. Similarly, when the demand for a commodity drops, so does the price. However, you need to dig deeper into geopolitical and economic factors to determine the key drivers of supply and demand. Let’s do just that.
The Organization of Petroleum Exporting Countries (OPEC) dictates the global supply of oil. This organization has Saudi Arabia as its dominant decision-maker. OPEC can artificially raise global oil prices by collectively deciding to reduce output. Alternatively, OPEC can artificially reduce oil prices by increasing its output levels. It would typically do this to fend off competition from Iran or the US.
This is just one example of how external factors impact commodity price movements. If you trade commodities, you must remember that demand and supply drive prices. In turn, these are dictated by several external factors that we have already discussed. So, how can you accurately predict future commodity price movements? Simple, all you need to do is stay in the loop regarding news surrounding the commodity you wish to trade.
Best Commodities To Trade
Now, let’s look at some of the best commodities you can trade. You must remember that no two commodities are the same when it comes to price cycles and demand and supply. As a trader, you must research before you begin trading, depending on your skillset and objectives. You can consider trading the following commodity markets.
Gold is the best commodity to trade for several reasons. Firstly, gold is numero uno when it comes to trading volume. The commodity attracts significantly more traction than other commodities in the market. You can benefit from competitive spreads, trading fees, and several instruments. Instruments include ETFs, gold stocks, futures, mutual funds, and options.
One advantage of trading gold is that prices are less reliant on geopolitical events. Instead, the commodity has a strong correlation with stock markets. You must keep an eye on the S&P and other major indices when trading gold. This will give you an idea of whether gold’s value will rise or fall in the future.
Oil ranks as one of the most in-demand commodities from a consumer perspective. This makes it an excellent asset to trade. As mentioned, oil prices are dictated by demand and supply. Often, demand and supply are manipulated by OPEC. Political developments in the Middle East or sanctions on oil-producing countries can also impact oil prices.
So, how do you trade oil in 2024? The easiest way to trade oil in the US is through an ETF like the United States Oil Fund. If you are an experienced trader, you can consider oil futures and options.
Like oil, natural gas is one of the most volatile commodities to trade. Its prices are also largely dictated by geopolitical events. Many Western governments have announced a ban on natural gas imports from Russia. As a result, the commodity has seen a significant price rally.
Copper finds significant use in electrical goods such as TVs, home heating systems, radios, and air conditioners. As such, demand for copper is always on the higher side.
However, its value depends on the strength or weakness of importing nations. If importers of copper have a strong economy, it results in higher demand. This leads to an increase in global prices.
The best ways to trade copper are through ETFs or purchasing stocks in a company that mines the commodity.
If you wish to trade soft commodities, sugar is an excellent place to start. According to eToro, global sugar prices have registered a 10% increase since last year. This is thanks to global supply issues that have made it difficult to export the commodity. This has led to reduced supply and burgeoning demand.
However, finding a suitable sugar market is far more difficult, unlike gold or oil. If you are outside the US, you can trade sugar CFDs at eToro. US-based traders can consider an ETF like the Teucrium Sugar Fund.
Stock Trading vs Commodity Market Trading
As an individual investor, accessing the commodity market is not practical. Direct access to such markets requires a special brokerage account and specific permissions. Commodities are considered an alternative asset class. This is why pooled funds that trade commodity futures only allow accredited investors.
However, ordinary investors can also access commodities through the stock market. Stocks of mining or material companies are typically correlated with commodities prices. Additionally, several ETFs track commodities or commodity indexes. Those looking to diversify their portfolio can choose to invest in these ETFs.
Is Commodities Trading Safe?
Is commodities trading safe? The short answer is yes. Let’s delve into the long answer. Your only enemy when it comes to commodity trading is yourself. The commodity trading industry is heavily regulated. For example, in the US, it is regulated by the Commodity Futures Trading Commission (CFTC). This means brokers offering commodity trading services are subject to several regulations and investor protections.
When choosing a broker to trade commodities online, ensure it is a regulated platform. eToro is an example of a highly regulated platform holding licenses with the FCA, CySEC, and ASIC. Additionally, unless you are an experienced trader, it is best to avoid commodities that are physically settled. This is because if the futures contract expires, you would be legally obligated to take delivery of the commodity.
The best way for new traders to trade commodities is through the relevant ETFs and stocks. These can give you exposure to your chosen commodity.
Best Commodity Trading Strategies
Having a clear trading strategy in mind is crucial to learn how to trade commodities. As a beginner, you will know that commodity trading is highly complex. Let’s discuss some of the best commodity trading strategies.
Day Trading Commodities
Day trading is an excellent strategy for trading commodities. The primary objective behind day trading is to spot short trading opportunities. You can enter and close a buy position within a few hours or even minutes. If your strategy is successful, you stand to make small but frequent gains.
Day trading can be complicated at first glance. However, it can be approached in a fairly risk-averse manner. You can set stop-loss orders on all your positions. This ensures you don’t lose more than you intended.
Learn Technical Analysis
Learning technical analysis is a big help when it comes to commodity trading. It’s an excellent addition to regular fundamental research. Technical analysis refers to the process of analyzing the price chart of a commodity.
The chart can be analyzed for both, short term and long term. Several technical indicators allow you to evaluate factors influencing volatility, volume, support and resistance, and more. Once you learn technical analysis, you can make informed decisions about how the commodity will move.
Support And Resistance Levels
Now, let’s talk about trading strategies more experienced traders could employ. More experienced commodity traders can look for notable support and resistance levels. First, let’s understand support and resistance levels. A support level is a specific price at which a commodity attracts interest from investors. If a commodity is undergoing a downward price movement, the support level ensures its value doesn’t continue to decline.
On the other hand, resistance is a price level that prevents a commodity from going higher, thanks to short sellers. You can enter suitable positions and make profits if you can identify support and resistance levels.
Geopolitical analysis is the most effective way of trading commodities. You can do this by spending ample time studying and researching the markets. More specifically, being in the loop with news regarding major geopolitical events is critical. This gives you the best chance of assessing if a commodity will rise or fall in value. Let’s understand how geopolitics can impact commodity prices.
When Donald Trump announced that the US would abandon its nuclear deal with Iran, it significantly impacted oil. The announcement resulted in oil hitting its highest price since 2014. This meant Iran struggled to export oil to Western nations. Iran is one of the biggest exporters of oil. As such, this resulted in global supply issues, increasing the commodity’s price.
So, how does one approach new geopolitical developments? The best way to do so is to assess how it would impact demand and supply. Once you determine this, you can place your order with the broker.
Output Figures And Stockpiles
Another effective strategy to trade commodities is to track output figures and stockpiles. Output refers to the amount of production of a commodity over a specific period. For example, oil companies report the number of tonnes produced in a single month. On the other hand, stockpiles refer to the amount of a commodity held by governments or corporations.
An example is China, which does not regularly release its gold stockpiles. However, when it does, it can significantly impact the value of the commodity. This is because if major economies start stockpiling commodities like gold, it indicates that the asset is in demand. As a result, its value will register a significant increase. Several economic calendars allow traders to track commodity output and stockpile announcements.
How To Trade Commodities – A Tutorial On eToro
Learning how to trade commodities is relatively simple if you choose a beginner-friendly broker like eToro. In this section, we will understand how to create an account on eToro. Creating an account on eToro takes just minutes. All you have to do is follow the steps listed below, and you’re good to go.
Step 1 – Open An eToro Account
The first step is to open an account on eToro. To do this, you must visit the eToro website and create a trading account. You will be required to submit your name and contact details. You will also be required to select a username and create a strong password. Once you have completed all the requisite information, click “Create Account.”
Step 2: Deposit Funds
Once your account has been created and verified, the next step is to add funds before you can begin trading. If you are based in the UK or US, the minimum deposit is $10. Traders based outside these regions have to deposit a minimum of $50.
eToro offers a significant advantage over other platforms regarding payment methods. The platform accepts credit and debit card deposits, ACH, PayPal, Neteller, and bank wire transfers. Additionally, all payments into your eToro account using USD don’t attract a deposit fee.
Step 3: Search For Commodity Assets
We’re almost there. Now that you have funds in your trading account, the next step is to search for your desired commodity market. You can do this by clicking on the “Discover” button. In the search bar, type “Commodities.” This will open up a complete list of commodities available for trading. You can also use the eToro search option if you are sure which commodity you wish to trade.
In the image above. We are searching for the “United States Oil Fund ETF.” This would allow us to track oil and gain exposure to the global oil markets.
Step 4: Place Your Trading Order
Once you have selected your commodity market, click the “Trade” button next to it. Upon clicking this, you will be presented with an order. Enter your desired investment stake and click on the “Open Trade” button. Remember also to set your stop-loss and take-profit orders. If you fail, the trade will remain open until you manually close it.
Conclusion – How To Trade Commodities
And that marks the end of our beginner’s guide on how to trade commodities. If you, as a trader, find volatility and speculation appealing, then you should learn how to trade commodities. However, before entering the commodity markets, you must have a firm grasp on a few things. The most important is how to perform fundamental research. You will also have to focus on geopolitical and economic news.
If you want to get started immediately, creating an eToro account takes minutes. The top-rated broker offers traders access to various commodity markets at competitive fees. Moreover, the platform is easy to use, even for beginners. However, a word of caution. As with any trading opportunity, you must understand the risks regarding commodity trading. It would help if you also were extremely thorough with your trading strategies.
Reviewed and Fact Checked by Wajeeh Khan, Fintech, Blockchain Writer and Investment Analyst.
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FAQs on How To Trade Commodities
How Much Money Do I Need To Trade Commodities?
The minimum investment amount varies between brokers. For example, eToro has a minimum balance requirement of $10 for its US and UK-based clients. Traders based outside these regions have a minimum deposit requirement of $50.
What Is The Safest Commodity When It Comes To Trading?
Gold is your best bet if you want to trade a commodity that does not witness much volatility. However, there are times when even gold goes through phases of volatility. This is why you must ensure that your stop-loss orders are in place.
What Are The Best Commodities To Trade?
The best commodities to trade are gold, oil, and natural gas. Other commodities considered excellent trading options are sugar and copper.
How Do You Trade Commodities?
If you are a beginner, gaining exposure to commodities through stocks and ETFs is advisable. However, more advanced traders typically trade commodities through futures or options.
Are Commodities Better Than Stocks?
Both commodities and stocks are entirely different asset classes. Long-term investors are better off investing in stocks. On the other hand, short-term traders could take advantage of the volatility associated with commodities.
Is Commodity Trading Profitable?
Commodity trading is just like any other investment. It can be profitable if you can accurately predict how prices will move consistently.
What Are Some Examples Of Commodities?
There are several commodities available in the markets. These are precious metals such as gold, silver, and platinum. There are also energy products such as gasoline, crude oil, and natural gas. Lastly, there are agricultural commodities. These include wheat, corn, soybeans, livestock, and more. Several other commodities can be traded. These include sugar, coffee, and cotton.
What Do Commodity Traders Do?
Commodity traders buy or sell physical (spot) commodities or derivatives contracts. These use a physical commodity as its underlying asset. The commodity market can be used for different purposes based on your trading goals. These include buying or selling physical products, speculating, hedging, and arbitraging.