Trading commodities

Where are commodities traded?

Commodities are bought and sold on exchanges around the world, each specialising in particular types of commodities.

ICE Futures Europe

A major European derivatives exchange trading soft commodities and financial products.

Speciality: Cocoa, wheat, coffee, sugar, corn

ICE Futures US

A leading global soft commodities futures and options exchange.

Speciality: Sugar, cotton, cocoa, coffee, orange juice

New York Mercantile Exchange (NYMEX)

Part of CME Group and the world's largest physical commodity futures exchange.

Speciality: Energy and metals – crude oil, natural gas, heating oil, RBOB unleaded gas, gold, silver, copper, platinum, palladium

London Metal Exchange (LME)

The world's leading non-ferrous metals market.

Speciality: Metals that do not contain iron – aluminium, copper, tin, nickel, zinc, lead, aluminium alloy, cobalt

Chicago Board of Trade (CBOT)

Part of CME Group and the world's oldest futures and options exchange.

Speciality: Grains – corn, soybeans, soybean oil, soybean meal, wheat, oats, rough rice

In the UAE, commodities are primarily traded via international markets, but Dubai is also home to the Dubai Gold and Commodities Exchange (DGCX), which lists gold, currency and energy futures.

Contract size

Commodity futures are traded in contracts. Each commodity market has a standard size, set by the futures exchange where it trades. As commodities are often bought and sold in large amounts, the contract size also tends to be large.

Let's take gold as an example. The contract size for gold futures is 100 troy ounces. So if gold is trading at $1100 per troy ounce and you buy just one contract of it, your contract would be worth $110,000 (1100 x 100 ounces).

Small investors generally don't have access to such large amounts of money, so just like when trading forex, you can often trade commodity futures on leverage. Many exchanges and brokers also offer 'mini' contracts, which tend to be between 10% and 50% of the size of a standard contract.

It's very important to note that both standard and mini contract sizes vary widely depending on the type of commodity – so it's vital to check the contract size carefully before placing a trade.

What drives commodity prices?

As with all markets, commodity prices are mainly driven by supply and demand.

If, for example, there's a good cotton crop which boosts the amount in circulation – the price of cotton will decrease (assuming that demand remains the same). On the other hand, if clothes manufacturers and other companies using cotton need more of the commodity, but producers don't have the capacity to match this demand, the price will increase.

Other factors that drive commodity prices include:

The weather

Agricultural commodities are particularly dependent on the weather as it influences the harvest. A poor harvest will result in low supply, causing prices to rise.

Economic and political factors

Events such as war or political unrest can have a big effect on prices. For example, turbulence in the Middle East can cause oil prices to fluctuate, given the region's role in global energy production.

The US dollar

Because commodities are usually priced in US dollars, their prices tend to move inversely to the dollar's value. If the price of the dollar falls, it takes more dollars to buy the same amount of commodities - so the price of commodities rises. Conversely, if the dollar goes up then it's cheaper to buy commodities, all things being equal.

Understanding supply and demand is one thing – seeing how quickly commodity markets react to real-world events is another. A demo account lets you track live price movements and test your knowledge using virtual funds, without risking real capital.