Commodities are basic physical goods that are interchangeable with others of the same type and are used as inputs in the production of other goods or services.
Main Types of Commodities
How Commodity Trading Works
Futures Contracts: Agreement to buy/sell at a predetermined price at a future date.
CFDs (Contracts for Difference): Speculate on price changes without owning the asset.
Spot Trading: Immediate purchase/sale of the commodity.
ETFs & Mutual Funds: Indirect exposure to commodity markets.
Options: Right, but not obligation, to buy/sell at a set price by a specific date.
Why Trade Commodities?
Hedge against inflation (especially gold and oil)
Portfolio diversification
Volatility = profit potential
Supply & demand-driven pricing (influenced by geopolitics, weather, economics)
Risks
High leverage = amplified losses
Political instability affecting supply chains
Weather events (especially in agriculture)
Volatility in global demand (especially energy)