Commodities are some of the most widely traded goods in the world so it's no surprise that trading on this market is also popular. They can also be easily traded with Tradu.
Before you begin, our guide will explain the different ways to trade commodities, so you can start to trade with confidence. Read on to discover more.
Commodity trading explained: read our guide
There are various types of commodities available (metal, agricultural and energy) and they're often (but not always) traded using financial derivatives, meaning you don't own or have to store the actual product. This makes it easy to trade the commodity market, unlike the traditional method of physically having to hand over the goods.
There are also multiple ways to trade commodities and it's common to use leverage, where you can open a larger position with a small deposit, allowing you to magnify potential profits. You can read more about the risks and rewards of leverage in our detailed guide.
These are types of commodity agreements where two parties agree to buy or sell a commodity at a set price on a specified date which signals the end of the contract.
Futures contracts involve tracking the daily price movements and agreeing on these up until the contract comes to an end. There is high flexibility as to when traders can enter and exit the market, and their high liquidity means that they can also be traded both ways, depending on the trader's prediction of the market direction of movement.
Forwards are traded privately and feature a predetermined end of contract date. This type of commodity trading doesn't take into account price movements, regardless of volatility within the market, so the buy or sell price is always set at the start of the contract.
While forwards contracts offer more flexible terms, they're usually not available to individual investors. Futures are traded via an exchange, generally through a broker, whereas forwards are traded over the counter, and therefore come with more risk.
Options are a popular way to trade various commodities and give traders the right to buy (call options ) or sell (put options ) a commodity at a specified price during the time of the contract. However, traders are not obliged to execute their trade and may choose not to do so.
Being a leveraged product, options allow a trader to speculate on a commodity price with a smaller deposit and without owning the underlying asset. But it's worth remembering that, as well as magnifying any profits, this can also increase potential losses.
Please note you cannot trade futures, forwards or options with Tradu; their inclusion here is for informational purposes only.
Contracts for difference (CFDs) are similar in the sense that traders speculate on price movements. Contracts are traded which relate to a value in the specific commodity market and are typically executed in the short-term. If an asset price is expected to rise, a trader will buy the CFD and if it's expected to fall a trader will sell.
CFDs are types of commodity trading that use leverage and offer trades on both rising and falling markets. They're also both financial derivatives, meaning a trader doesn't need to own the actual asset as these products track the underlying price.
Swaps are a type of commodity trading that rely on a derivative contract and are usually traded outside of an exchange without a broker. They involve two parties making an agreement to exchange cash flows, relating to the price of an underlying asset or commodity. Swaps are often used to hedge against extreme price fluctuations in commodity markets.
Because these trades normally take place privately, they're not usually executed by individuals, but are limited to companies. Please note that swaps are not available with Tradu; their inclusion here is for informational purposes only.
This type of commodity trading involves trading at a commodity's current or "on the spot" price and immediately exchanging cash for the asset. In real terms, the delivery of the instrument might take some time, but the buyer and seller make an agreement at that moment.
Unlike futures and forwards, this type of trading is not a form of financial derivative and therefore it's often required that traders take actual delivery of the asset. It's more common for traders to use the spot market to hedge trades in derivatives. Please note that spot trading is not available with Tradu; its inclusion here is for informational purposes only.
A key factor in how to trade commodities is to fully understand what drives commodity prices and to develop a strategy. You can read more in our guides.
It's easy to open an account with Tradu. Signing up takes just minutes and once you're ready, you can begin to trade: