In a nutshell, the best commodities to trade are crude oil, gold, and natural gas, due to their high liquidity and active market presence. Agricultural products like corn, soybeans, and coffee are also popular for their regular demand cycles and market volatility.
In this article, I’ve outlined the 10 best commodities to trade, delving into the dynamic world of commodities that shape our global economy.
From the robustness of iron ore to the volatility of coffee, each commodity presents unique opportunities and challenges for traders.
Discover the intricate factors driving their markets and how they reflect broader economic trends.
This article was reviewed by Tobi Opeyemi Amure, a trading expert and writer at Investopedia, Investing.com, and Trading.biz.
Top 10 Commodities to Trade in 2024
Here are the best day trading commodities you should consider.
Gold stands out as a leading commodity in the trading world, prized for its rarity and consistent demand.
Its primary sources from China, Russia, and Australia contribute to a global supply of approximately 170,000 tonnes.
Predominantly utilised in jewelry and investment forms like bars and coins, gold’s value is also influenced by limited industrial uses.
As a trading commodity, gold is known for its resilience against economic fluctuations, making it a safe haven for investors1.
This stability is reflected in its price, which often inversely correlates with the U.S. dollar. Key factors affecting its market value include central bank policies and global economic trends.
Gold’s enduring appeal for traders lies in its ability to hedge against inflation and offer stability during uncertain economic times.
Its significant role in investment portfolios and central banks’ strategies further highlights its status as a reliable and valuable commodity in the trading market.
Silver stands out in the commodities market, known as “poor man’s gold,” for its unique dual role.
It’s not just a precious metal used in jewelry but also crucial in various industries like electronics, healthcare, and energy.
This broad utility makes it sensitive to both economic trends and industrial demands, influencing its trading volume.
Trading silver offers key benefits. It’s a hedge against inflation, retaining value even when fiat currencies decline2.
Additionally, silver’s limited supply, with production stagnating and scrap supply low, hints at potential price increases, especially given its irreplaceable role in technology manufacturing.
Overall, silver’s combination of industrial demand and investment appeal makes it a dynamic choice for traders, offering opportunities in a diverse and fluctuating market.
3. Crude Oil
Crude oil, beyond being a major energy source, is crucial for producing petrochemicals, textiles, fertilisers, and plastics.
Despite the rise of green energy, its diverse uses ensure ongoing demand. Crude oil prices are mainly driven by supply and demand dynamics, significantly influenced by geopolitical and economic factors, particularly in oil-rich regions like the Middle East.
Trading in crude oil is characterised by its volatility and strong correlation with the American Dollar (USD).
Investors typically engage through futures contracts, exchange-traded funds (ETFs), or contracts for difference (CFDs). The leverage provided in futures trading allows control over large values with less capital but also poses risks of significant losses.
Given crude oil’s finite supply, its long-term value is expected to rise as demand remains steady.
In essence, crude oil’s extensive applications and market sensitivity make it a compelling commodity for traders, albeit with a need for cautious market analysis and risk management.
4. Natural Gas
Natural gas, a key source of energy, stands out for its rarity and costlier sourcing compared to crude oil.
Its price is largely driven by supply and demand, with weather conditions playing a pivotal role; cold weather, for example, boosts demand and prices due to increased heating needs.
Price volatility in the natural gas market is influenced by geopolitical tensions, such as the conflict between Ukraine and Russia, which affects European supplies and, consequently, global prices3.
The reliance on Russian natural gas and potential economic downturns in Europe due to gas rationing further complicate the market dynamics.
Despite these challenges, natural gas remains a vital commodity. Its significance in the transition to greener energy and as a cleaner alternative to coal keeps it in high demand for power generation and various industrial uses.
Traders and investors in natural gas must carefully consider these fluctuating factors, as they continue to play a crucial role in the evolving global energy landscape.
Copper, essential for its conductivity and corrosion resistance, is widely used in electrical wiring, piping, and industrial machinery.
Its universal availability and versatile applications place it among the most demanded metals globally. Copper’s price is closely tied to the health of the global economy, reflecting its industrial significance4.
Annually, around 22 million metric tons of copper are mined5, yet this falls short of the escalating demand driven by advancements in technology, such as electric vehicles, wind turbines, and solar panels.
Experts predict a potential tripling in copper demand by 2040, suggesting looming shortages and price hikes6.
In the trading world, copper is valued for its volatility and role as an economic indicator. Its growing demand in emerging economies and critical role in technology development make it a compelling choice for traders.
However, this comes with the need for careful navigation of market fluctuations and supply-demand challenges.
Coffee is a widely consumed commodity with Brasil, Vietnam, Colombia, Indonesia, and Ethiopia as their major producers.
Its price is influenced by factors like political stability in producing countries, weather conditions affecting crops, transportation costs, and the US dollar rate.
With a long trading history, coffee consumption has grown to about 170 million bags annually worldwide7.
The market for coffee is notably volatile, with prices fluctuating due to weather impacts, diseases affecting crops, and changes in consumer preferences.
Geopolitical events in key producing regions and transportation costs also significantly affect coffee prices, as do fluctuations in the US dollar.
As a commodity, coffee presents investment opportunities linked to global economic growth and evolving consumer trends.
However, its market is prone to rapid changes, making it a potentially risky but rewarding commodity for traders who can navigate its complex dynamics.
Soybeans are a highly versatile commodity, high in protein, and economical to produce. Major producers include Brasil, China, Argentina, and India.
Beyond their basic use, soybeans are key in creating a variety of products such as animal feed, meat substitutes, soybean oil, milk alternatives, and biodiesel.
The price of soybeans is subject to several factors including weather conditions impacting crop yields, demand for soybean-based products, and fluctuations in the US dollar rate. The US, as a major producer, plays a significant role in influencing global soybean prices.
Soybeans are also considered an investment commodity, serving as a hedge against inflation and a weak US dollar.
Their demand is likely to increase with global economic growth, especially in emerging markets where demand for livestock feed and oils is rising.
Additionally, the development of biodiesels contributes to this demand.
Traders often choose to invest in soybeans for portfolio diversification, given their low correlation with traditional assets like stocks or bonds.
However, factors like US production, alternative oil markets, and ethanol subsidies can significantly impact the supply and price of soybeans, making them a dynamic and potentially profitable commodity in the trading market.
8. Iron Ore
Iron ore is a key component in steel production, widely available and easy to mine. Its price stability historically aligned with demand, but recent increases in steel demand, particularly from China’s urbanisation, have led to shortages and price hikes.
The economic conditions, housing market trends, and global supply issues, such as the Russia-Ukraine conflict, significantly influence iron ore prices. Its utility in infrastructure and industrial development makes it a vital commodity, reflective of global economic health.
Investors often view iron ore trading as a bet on economic growth and a strategy for portfolio diversification.
Given its critical role in steel production and finite supply, iron ore offers potential in trading, especially considering the evolving global economic landscape and infrastructure needs.
Corn, widely used in food, animal feed, biofuel, and industrial products, is a key agricultural commodity.
Major producers include the United States, Brasil, China, India, and Argentina.
Its price is influenced by the demand for these products, environmental impacts on crops, and the US dollar’s strength.
The market for corn is closely tied to ethanol production and animal feed demand.
Factors such as agricultural subsidies, particularly in the US, global economic conditions, and weather patterns significantly affect corn prices.
Additionally, geopolitical events and shifts in consumer preferences can also influence market dynamics.
Corn’s role in both the food industry and biofuel production makes it a significant commodity for traders, offering opportunities linked to global economic and environmental trends.
Its diverse uses and the various factors affecting its price make it a dynamic option for commodity trading.
Steel, an alloy of iron ore and carbon, is essential in various industries including construction, infrastructure, and manufacturing due to its strength and cost-effectiveness.
Its price closely mirrors global economic trends, rising with economic growth and falling during downturns.
The cost of steel is influenced by the prices of raw materials like iron ore and geopolitical factors. Recent global trade policies have notably impacted steel prices.
Trading in steel is a strategic way to speculate on infrastructure growth, emerging market development, and transportation demands.
As a barometer of manufacturing and economic activity, investing in steel offers insights into global infrastructure trends and economic performance.
Despite the complexity of its various compositions and futures contracts, steel remains a crucial commodity in reflecting the health of the global economy.
What Is Commodity Trading?
Commodity trading involves buying and selling raw materials or primary products like oil, gold, coffee, or wheat on financial markets.
Traders either speculate on the future price of these commodities to make a profit or hedge against risks associated with price fluctuations.
This trading can occur on futures markets, where contracts are based on the predicted future price of a commodity, or on spot markets for immediate delivery.
Here’s a video that provides a good introduction to commodity trading:
Why Trade Commodities?
Trading commodities offers several benefits:
- Diversification: Commodities often have a low correlation with stocks and bonds, providing a way to diversify an investment portfolio and reduce overall risk.
- Hedge Against Inflation: Commodities, especially precious metals like gold, can retain value or even appreciate during times of high inflation, protecting purchasing power.
- Speculation and Profit: Traders can speculate on price movements of commodities based on market trends, supply and demand dynamics, or geopolitical events, aiming for profit.
- Leverage: Futures markets allow traders to use leverage, controlling large positions with a relatively small amount of capital, potentially amplifying profits.
- Protection Against Volatility: Certain commodities, such as gold, are considered safe-haven assets and can provide stability during periods of market volatility or economic downturns.
- Global Economic Insights: Commodity prices often reflect global economic trends, providing traders with insights into economic health and growth patterns around the world.
Factors to Consider When Choosing a Commodity to Trade
When choosing a commodity to trade, consider the following factors:
- Market Volatility: Assess the historical price volatility of the commodity. Some commodities, like oil or precious metals, can have significant price swings, offering higher potential returns but also greater risks.
- Supply and Demand Dynamics: Understand the factors affecting supply and demand for the commodity, such as seasonal patterns, geopolitical events, technological advancements, or environmental policies.
- Liquidity: Choose commodities that have high trading volumes and liquidity, ensuring easier entry and exit from positions without significant price impact.
- Economic Indicators: Monitor global economic indicators and trends, as commodities can be sensitive to changes in economic growth, inflation rates, currency fluctuations, and interest rates.
- Geopolitical Risks: Be aware of geopolitical issues in key producing regions, as they can cause supply disruptions or demand shifts, impacting prices.
- Storage and Carry Costs: For physical commodities, consider storage costs and the challenges of perishability. In the case of futures, consider the carry costs associated with holding contracts over time.
- Diversification Needs: Choose commodities that complement and diversify your existing portfolio, reducing overall investment risk.
- Personal Expertise and Interest: Select commodities that align with your knowledge, interests, or areas where you can develop expertise, as this can lead to better-informed trading decisions.
- Regulatory Environment: Understand the regulatory environment of the commodity markets, as some commodities might have stricter regulations, affecting trading strategies and costs.
- Technological Changes: Keep an eye on technological advancements that could disrupt traditional commodity markets, such as the impact of renewable energy sources on fossil fuel demand.
How Do I Start Commodities Trading?
To start commodities trading, follow these steps:
- Educate Yourself: Learn about commodities markets, including different types of commodities (like metals, energy, and agricultural products), trading strategies, and market dynamics. Utilise books, online courses, webinars, and financial news sources.
- Understand the Risks: Commodity trading can be volatile. Understand the risks involved, including the potential for significant losses. Ensure you have a clear risk management strategy.
- Choose a Trading Style: Decide whether you want to trade physical commodities, futures contracts, options, CFDs, or commodity-related stocks and ETFs. Each has different characteristics and risk profiles.
- Select a Broker: Choose a reputable broker that offers commodities trading. Look for factors like commission fees, trading platforms, educational resources, and customer support.
- Open a Trading Account: Set up a trading account with your chosen broker. This will usually involve providing personal information and completing a verification process.
- Start with a Practice Account: Many brokers offer demo accounts where you can practice trading with virtual money. Use this to familiarise yourself with the trading platform and test strategies.
- Develop a Trading Plan: Create a trading plan that defines your trading goals, strategies, risk tolerance, and criteria for entering and exiting trades.
- Stay Informed: Regularly follow commodities market news and analysis to stay informed about factors that could impact commodity prices.
- Begin Trading: Start trading with real money. It’s often wise to start small and gradually increase your exposure as you gain more experience and confidence.
- Monitor and Review: Regularly review your trades and strategies to learn from successes and mistakes, and adjust your trading plan as needed.
Remember, commodities trading requires a significant amount of research and understanding of the markets, and it’s important to only trade with money you can afford to lose.
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How Much Money Do I Need to Start Trading Commodities?
The amount of money needed to start trading commodities varies based on several factors, including the type of commodities you’re interested in, the trading platform or broker you choose, and the method of trading (like futures, options, or ETFs).
Here are some general guidelines:
- Broker Minimums: Different brokers have varying minimum deposit requirements to open an account. These can range from as little as $100 to several thousand dollars.
- Futures Trading: If you’re trading futures, you’ll need enough to cover the initial margin requirement, which is a fraction of the total contract value. This can range from a few hundred to several thousand dollars per contract, depending on the commodity.
- Options Trading: Options may require less capital than futures. The cost to buy an option (known as the premium) can be a few hundred dollars, depending on the underlying commodity and contract specifications.
- ETFs and Stocks: If you opt for commodity ETFs or stocks of commodity-producing companies, the minimum investment could be the price of a single share, often making this the least capital-intensive option.
- Additional Funds for Risk Management: It’s crucial to have additional funds beyond the minimum requirements to manage risk effectively, especially given the volatility in commodities markets.
- Consider Leverage: Leverage can allow you to control large positions with a relatively small amount of capital, but it also increases the risk of significant losses.
- Transaction Costs: Account for any transaction fees or commissions that might apply.
As a general rule, only trade with money you can afford to lose. It’s often recommended for beginners to start small and gradually increase their investment as they gain more experience.
Best Commodities to Trade for Beginners
For beginners, the best commodities to trade are typically those with higher liquidity, lower volatility, and abundant information available for research.
Here are a few suitable options:
- Precious Metals (Gold and Silver): These are often considered safe-haven assets and are less volatile compared to other commodities. They are widely traded, providing good liquidity and a wealth of informational resources.
- Energy Commodities (Crude Oil and Natural Gas): While they can be volatile, they are also highly liquid and offer ample trading opportunities. Beginners should approach these with caution and thoroughly understand the factors influencing their prices.
- Agricultural Commodities (Corn and Soybeans): These are fundamental to the global food supply and have a large market. Their prices can be influenced by predictable factors like seasonal changes, making them a good option for beginners to learn about market influences.
- Base Metals (Copper): Copper is used widely in construction and manufacturing, and its price is often linked to global economic health. It’s a highly traded commodity, but traders should be aware of economic cycles and their impact on prices.
- Soft Commodities (Coffee): While more volatile, they can offer good learning opportunities. The market for soft commodities like coffee is influenced by both predictable (seasonal patterns) and unpredictable factors (weather events).
For beginners, it’s crucial to start with thorough research and perhaps practice trading using demo trading accounts.
Additionally, beginners should invest only what they can afford to lose, use risk management strategies like stop-loss orders, and keep up with global news that can impact commodity prices.
Best Commodity Trading Strategies
- Trend Following: This strategy involves identifying and following established market trends. Traders buy commodities during uptrends and sell or short-sell during downtrends, capitalising on market momentum.
- Range Trading: Focuses on trading commodities within a specific price range. Traders buy at the lower end of the range and sell at the higher end, profiting from predictable price fluctuations within the range.
- Breakout Trading: This involves entering the market when the commodity price breaks out from its established range or pattern, indicating the potential start of a new trend.
- Fundamental Analysis: Traders use fundamental analysis to evaluate commodities based on supply and demand factors, including weather patterns, geopolitical events, and economic data, to make informed trading decisions.
- Technical Analysis: Utilises historical price data and chart patterns to predict future market movements. Traders use tools like moving averages, support and resistance levels, and oscillators.
- Hedging: A risk management strategy where traders take an opposing position in the derivatives market to offset potential losses in the spot market, commonly used in the agricultural commodities sector.
- Seasonal Trading: Capitalises on seasonal patterns in commodity prices, such as the harvest season for agricultural commodities or the summer driving season for oil.
- Spread Trading: Involves taking simultaneous long and short positions in two related commodities, aiming to profit from changes in the price relationship or spread between them.
Each strategy has its own risk and requires a thorough understanding of the commodities market, along with continual monitoring of market conditions and price movements.
Which commodities make the most money?
Commodities that often generate significant profits due to high demand and price volatility include crude oil, gold, and copper. Crude oil is highly valued for its essential role in global energy markets, making it a top commodity for profitability. Gold, known for its safe-haven status, often sees price surges during economic uncertainties. Copper, crucial in electrical and construction industries, gains from global economic growth and infrastructural development, leading to profitable trading opportunities.
Can you get rich trading commodities?
Yes, it’s possible to get rich trading commodities, but it involves significant risks and requires expertise, strategy, and discipline. Success in commodity trading often comes from informed decision-making, understanding market trends, and effective risk management. However, due to the volatile nature of commodities markets, there’s also a substantial risk of substantial losses. As with any form of trading or investment, there are no guarantees of wealth, and it’s crucial to trade within your means and risk tolerance.
What is the safest commodity to trade?
The safest commodity to trade is often considered to be gold due to its historical stability and status as a safe-haven asset. Gold typically maintains its value and sometimes appreciates during economic uncertainties or market volatility. However, while it’s relatively safer compared to more volatile commodities like crude oil or agricultural products, it still carries some risk and can be influenced by factors like currency fluctuations and interest rates. As with any investment, it’s important to conduct thorough research and consider risk tolerance before trading.
What are the risks of trading commodities?
Trading commodities involves several risks including market volatility, where prices can fluctuate widely due to factors like geopolitical events, weather conditions, and changes in supply and demand. There’s also the risk of leverage, which can amplify both gains and losses. Additionally, commodity markets can be impacted by global economic conditions, leading to unpredictable price movements. These risks necessitate thorough market knowledge, effective risk management strategies, and cautious investment decision-making.
You may also like:
- https://www.elibrary.imf.org/view/journals/001/2023/014/article-A001-en.xml ↩︎
- https://www.sciencedirect.com/science/article/pii/S105752191500037X ↩︎
- https://www.eia.gov/naturalgas/weekly/archivenew_ngwu/2003/10_23/Volatility%2010-22-03.htm# ↩︎
- https://www.sciencedirect.com/science/article/abs/pii/S030142072100235X ↩︎
- https://www.statista.com/statistics/254839/copper-production-by-country/ ↩︎
- https://www.bloomberg.com/news/articles/2022-09-01/copper-demand-to-rise-50-by-2040-as-clean-energy-takes-hold ↩︎
- https://www.icocoffee.org/documents/cy2022-23/cmr-0623-e.pdf ↩︎
*All content on this page and website is based on individual experience and journalistic research. It does not constitute financial advice.