In short
- Commodities fall into energy, metals, agriculture and livestock.
- Most trading happens through futures contracts on exchanges such as CME Group, ICE and the LME.
- Supply shocks, inventories, the US dollar and global growth drive prices.
- Futures prices can behave very differently from spot prices, which affects funds and CFDs.
The main groups
| Group | Examples | Main drivers |
|---|---|---|
| Energy | WTI and Brent crude oil, natural gas | OPEC+ supply decisions, inventories, global growth, geopolitics |
| Precious metals | Gold, silver, platinum | Interest rates, the dollar, safe-haven demand, industry |
| Industrial metals | Copper, aluminium, nickel | Manufacturing and construction, especially in China |
| Agriculture | Wheat, corn, soybeans, coffee, sugar | Weather, harvests, trade policy |
| Livestock | Cattle, hogs | Feed costs, disease, consumer demand |
How commodities are traded
Most commodity trading uses futures contracts: standardised agreements to buy or sell a fixed quantity at a set price on a future date. Major venues include CME Group (including NYMEX for energy and COMEX for metals), ICE (home of Brent crude) and the London Metal Exchange for industrial metals. Producers and consumers use futures to lock in prices; speculators trade them for profit.
Most speculators close or roll their positions before expiry to avoid taking physical delivery.
Spot, futures, contango and backwardation
The spot price is for immediate delivery. Futures prices for later months are often different:
- Contango: later contracts cost more than nearby ones, often reflecting storage and financing costs. Funds that roll futures lose a little each time they switch to a pricier contract.
- Backwardation: later contracts are cheaper, often when current supply is tight. Rolling can then add to returns.
This is why a commodity fund can underperform the headline commodity price over time.
When prices do strange things
In April 2020, as demand collapsed and storage filled up, the expiring May WTI oil futures contract settled at minus $37.63 a barrel: holders paid others to take the oil. It was a rare event, but it shows that commodity markets are tied to physical realities such as storage and delivery in a way that shares and currencies are not.
Ways to get exposure
- Futures: large contract sizes and margin requirements; mainly for experienced traders.
- Commodity ETFs and ETCs: track futures or hold physical metal; watch for roll costs and fees.
- Shares in producers: mining or energy companies, which also carry company-specific risks.
- CFDs: leveraged contracts on commodity prices; retail leverage in the UK and EU is capped at 10:1 for commodities other than gold. See CFDs explained.
Gold as a special case
Gold trades partly like a currency and is held by central banks as a reserve asset, so it often behaves differently from other commodities. Our gold trading guide covers it in detail.
Risks
Commodity prices can move violently on a single report, a weather forecast or a political decision. Combined with leverage, those moves can quickly exceed a trader's planned risk. Size positions carefully with the position size calculator and read risk management.
Where forex and commodities meet
Several currencies behave partly like a forex commodity play: the Canadian dollar and Norwegian krone often react to oil, the Australian dollar to metals. Gold itself is quoted like a currency pair, XAU/USD.
Frequently asked questions
What is the difference between WTI and Brent oil?
Both are benchmark grades of crude oil. WTI is produced in the US and traded mainly on NYMEX; Brent comes from the North Sea and is traded on ICE. Brent is the more widely used international benchmark.
Can commodity prices go negative?
Rarely, but yes. In April 2020 an expiring WTI oil futures contract settled below zero because storage was almost full and holders could not take delivery.
Why do commodity ETFs not match the commodity price?
Many hold futures that must be rolled forward. In contango, each roll costs money, so returns can lag the spot price over time.
Sources
- CME Group: energy and metals futures
- U.S. EIA: oil market explained