What are commodities and how do you trade them?

What are commodities?

A commodity is a naturally occurring raw material or agricultural product that is used in the production of other goods or as a direct resource. Commodities are broadly interchangeable with other goods of the same type, which is what makes them tradeable on standardised exchanges: a barrel of WTI crude oil from one producer is functionally the same as one from another, allowing global price discovery through a single benchmark.

The commodity markets are divided into four main categories: energies (crude oil, natural gas, heating oil), metals (gold, silver, copper, platinum), agricultural goods (wheat, corn, coffee, sugar) and livestock (cattle, lean hogs). Each category has different supply and demand drivers, different exchanges and different trading conventions.

How does commodity trading work?

Commodity trading involves taking a position on whether the price of a commodity will rise or fall. In the physical market, commodities are bought and sold for immediate delivery. In the financial markets, where most retail trading activity occurs, prices are derived from futures contracts: standardised agreements to buy or sell a specific quantity of a commodity at a predetermined price on a future date.

For most retail traders and investors, direct engagement with physical commodities or futures exchanges is impractical. Instead, access comes through financial instruments that track commodity prices, including spread bets, CFDs, exchange-traded funds and commodity stocks.

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading spread bets and CFDs with us. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.

Ways to trade and invest in commodities

1. Spread bets and CFDs

Spread betting and CFD trading provide leveraged exposure to commodity prices without taking ownership of the underlying asset. You can go long if you expect a price to rise, or short if you expect it to fall. Spread bets are free from UK capital gains tax and stamp duty. Both products use margin, meaning a small deposit controls a much larger position. We offer spread bets and CFDs on 27 commodity markets including gold, silver, oil, natural gas, copper, wheat, coffee and sugar.

2. Exchange-traded funds and ETCs

For investors who want commodity exposure without leverage, exchange-traded products offer a practical route. Exchange-traded commodities (ETCs) track the price of individual commodities such as gold or silver and can be held in a stocks and shares ISA for tax-efficient returns. UK commodity ETFs and global commodity ETFs provide diversified exposure across multiple commodities or commodity-linked sectors in a single trade. The distinction between index funds and ETFs is relevant here: most commodity ETFs are physically backed or futures-based, not index-tracking in the traditional sense.

3. Commodity futures

Listed commodity futures allow traders to take positions on the agreed future price of a commodity. Futures contracts are exchange-traded and standardised, with set contract sizes, expiry dates and settlement procedures. We offer listed futures on our US options and futures platform alongside OTC futures via spread bets and CFDs. Futures are most suitable for experienced traders who understand rollover costs and contract expiry mechanics.

4. Commodity stocks

Buying shares in companies that produce, extract or process commodities provides indirect exposure to commodity prices. A significant move in the gold price, for example, tends to amplify through the earnings of gold mining companies, which have fixed costs and therefore see profit margins expand when the underlying commodity rallies. FTSE 100 commodity producers including Rio Tinto, Glencore, Anglo American and BP are among the most widely traded stocks in this category. Commodity stocks can be held in a share dealing account or ISA.

What drives commodity prices?

Commodity prices are driven by a constantly shifting balance between global supply and demand, amplified by financial market positioning and macroeconomic conditions.

Supply-side factors include OPEC+ production decisions for oil, mine output and geopolitical disruption for metals, and weather events and crop yields for agricultural commodities. A frost in a major coffee-growing region, a mining disruption in Chile, or a hurricane in the Gulf of Mexico can all move commodity prices significantly within hours.

On the demand side, Chinese economic growth is the single most important driver for many industrial metals and energy commodities. A slowdown in Chinese manufacturing activity reliably weighs on copper and iron ore prices. US economic conditions influence oil demand through consumption patterns and the strength of the dollar, since most commodities are priced in USD.

Financial market dynamics layer on top of these fundamentals. Commodity prices often rally during periods of inflation, dollar weakness or geopolitical uncertainty, as investors seek tangible assets. Gold in particular has historically served as a safe-haven during market stress, as its record-high price in early 2026 reflected.

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