What are commodities?
Commodities are the raw materials that global trade, industry and economies rely on. From the oil used to power transport and manufacturing, to the gold some investors turn to during uncertain times, these assets play an important role in consumption, production, trade and investment. A commodity can be traded according to unified specifications and standards regardless of who produced it. That is why commodities are traded in large volumes in global markets, including metals, energy sources, agricultural crops and other essential resources.
Main types of commodities
Commodities are usually divided into two basic categories. Hard commodities are natural resources extracted from the earth, notably gold, silver, crude oil, natural gas and copper. Their prices are affected by production levels, inventories, industrial demand, geopolitical developments and global economic conditions. Soft commodities include products that are grown or raised, such as wheat, corn, coffee, cocoa, sugar and livestock. These commodities are heavily influenced by seasons, weather conditions, harvests, disease and global food demand.
Precious metals and energy commodities
Gold and silver attract wide interest, especially during periods of inflation or economic and political volatility. Their prices are often affected by interest rates, the strength of the US dollar, inflation expectations and investor risk appetite. Oil and natural gas are among the most active energy commodities because of their importance to the global economy. Their prices can change in response to producer-country decisions, inventory levels, geopolitical events, weather, supply-chain disruptions and shifts in global demand.
Ways to access commodity markets
There are several ways to gain exposure to commodity price movements. Futures contracts are agreements to buy or sell a commodity at a set price on a future date, used for trading or hedging against price changes, but they may involve more complex requirements and settlements. Indirect commodity exposure can be obtained by buying shares of companies involved in producing or extracting them, or by investing in funds that track commodity prices or related sectors. CNDLEX also offers commodities through CFDs, allowing speculation on price changes without buying, owning or storing the physical commodity. A trader can open a buy position if they expect prices to rise, or a sell position if they expect prices to fall. The trade outcome depends on the difference between the opening and closing prices after accounting for spreads, fees and applicable costs.
Example of trading gold
Suppose gold is trading at USD 1,821.50 per ounce and you expect the price to rise, so you open a buy position equivalent to 10 ounces. The total value of the trade is USD 18,215. If the margin requirement is 5%, equivalent to 20:1 leverage, the margin required to open the trade would be about USD 910.75. If gold rises to USD 1,851.50, the price difference is USD 30 per ounce, representing a profit of USD 300 before fees and costs. If the price falls to USD 1,791.50, the trade could result in a loss of USD 300 before costs. This example is educational and simplified and shows that leverage can magnify a trade's outcome in both directions without reducing the actual market exposure.
Why traders care about commodities
Commodities can be used to diversify exposure across different markets and assets because their prices may move differently from stocks or currencies due to their direct link to production, consumption, supply and demand. During some inflationary periods or market turmoil, investors may turn to assets such as gold as a potential hedge. However, gold or any other asset does not preserve its value in all conditions and can also experience sharp declines and volatility. Commodities also attract traders because of price trends and volatility that may result from economic news, changes in production and inventories, or sudden supply disruptions.
Factors that move commodity prices
Commodity prices are affected by a wide range of factors, including supply and demand levels, production and inventory volumes, decisions by producing countries and organisations, political and geopolitical events, weather conditions and natural disasters, interest rates and inflation, the strength of the US dollar, economic growth and industrial demand, and transport and supply-chain movements. The impact of each factor varies depending on the type of commodity, market nature and surrounding economic conditions.
Risks of trading commodities
Commodity markets can experience sharp and sudden price changes, especially when inventory data is released, production decisions are made, or unexpected political or climatic events occur. When using leverage, a relatively small price move can lead to a large profit or loss compared with the margin used. Therefore, trading commodities requires careful position sizing, the use of risk-management tools and close monitoring of market-moving news and data. CNDLEX provides trading and analysis tools, data and educational content to help traders understand commodity markets, follow the factors driving prices and make decisions with greater awareness and discipline.
