New to commodities trading?
Commodities are the basic building blocks of the global economy. They are natural resources traded on dedicated exchanges around the world.
There are two types of commodity – soft and hard. Soft commodities are typically agricultural like wheat or sugar, whereas hard commodities are metals or energies like silver and gas.
The production and consumption of commodities depends on many factors, including:
- Supply and demand
- The weather
- Economic and political events
- The US dollar (commodities are normally priced in the US currency)
As a result of all these factors, commodity prices can fluctuate significantly.
How and where commodities are traded
Commodities are traded on a number of exchanges that specialise in particular markets, including:
- LIFFE – agricultural products
- London Metal Exchange – non-precious metals
- Chicago Mercantile Exchange – energy and metals
- ICE Futures US – agricultural products
- Chicago Board of Trade – agricultural products
- ICE Futures Exchange - energy
Commodities are also generally traded as futures contracts. These are simply agreements to trade an asset at an agreed price and date in the future. This enables you to trade the contracts themselves without ever having to own the underlying asset.