What are commodities and how do you trade them?

Commodities power our daily lives, from the petrol in our cars to the wheat in our bread. For CFD traders, they also represent an important market category with their own price drivers, risks and characteristics.

In this article, we explain what commodities are, how CFD trading on commodity prices works, and outline some of the key factors to consider before getting started.

What are commodities?

Commodities are standardised raw materials used to produce other goods and services. They’re generally interchangeable (fungible) and traded in large volumes on regulated markets. Commodities are most commonly grouped as either ‘hard’ – mined or extracted, like gold, silver, copper, crude oil and natural gas – or ‘soft’ commodities, which are agricultural products that are grown and cultivated, such as coffee, wheat, corn and sugar.

Crude oil is among the most actively traded commodities on the planet, and there are about 50 major commodity exchanges worldwide that facilitate price discovery and risk transfer.

If you’re just starting to research what commodities are, one way to think about them is as building blocks of the economy. They are the energy that fuels transport and industry, the metals that go into electronics and construction, the agricultural products that feed and clothe us.

Key takeaways

• Commodities are everyday raw materials – think oil, gold and wheat.

• Among the ways to gain commodity exposure are CFDs linked to commodity prices, commodity-related shares, or futures contracts, which enable traders to take long or short positions without owning the underlying asset.

• Prices move with supply and demand. Big drivers are the economy, government decisions, world events and the weather.

How commodities trading works

There are several pathways to get commodity exposure:

Futures

Most commercial hedging and institutional speculation happens with standardised futures contracts on exchanges (or via over-the-counter forwards). Exchanges stipulate the minimum quality and contract sizes (e.g. a wheat contract representing a fixed number of bushels), which makes prices comparable and tradable. While some futures allow for physical delivery, most traders close out before expiry.

CFDs (contracts for difference)

Retail traders tend to speculate on commodity price movements using CFDs, which mirror the underlying price without having any actual ownership of the physical goods. CFDs can be used to go long or short and are traded on margin, which can increase both your potential profits and losses.

ETFs and shares

Exchange-traded funds track single commodities, baskets or indices. Shares in commodity-producing companies (such as miners or energy firms) can offer a different type of exposure, as their performance is influenced by both commodity prices and broader business factors.

Types of commodities

Commodities are commonly segmented by market:

• Energy: Brent Crude, West Texas Intermediate (WTI) and natural gas.

• Metals: Precious (gold, silver) and industrial (copper).

• Agriculture: Coffee, sugar, wheat, corn and soybeans.

With CMC Markets, you can see prices on over 100 cash and forward commodity contracts, including Brent and WTI, gold, silver, copper, natural gas and coffee. See the full list on our commodities page.

Factors affecting commodity prices

Commodity prices tend to fluctuate based on supply and demand, but additional drivers can differ by market:

• Macroeconomics: Global growth typically lifts demand for energy and industrial metals. Economic slowdowns can weigh on prices.

• Geopolitics and policy: Wars, trade sanctions, tariffs and other events can all disrupt supply chains and impact pricing. For example, the energy markets may react to conflict or sanctions.

• Weather and seasonality: Drought, floods or cold snaps can hamper agricultural yields and raise the demand for fuel.

• Market sentiment and news: For many traders, event-driven strategies combine headlines with technical analysis to time their entries and exits.

How to start trading commodities in Australia

Whether you use futures or CFDs, the workflow is similar. Choose your market, decide to buy (long) or sell (short), select your size, have good risk-management strategies at hand, monitor and close. Here’s a deeper look:

1. Open a CMC Markets account

Start by creating a live or demo account with CMC Markets. Our Next Generation platform offers access to over 100 cash and forward commodity instruments, including crude oil (Brent and WTI), gold, copper, natural gas, and coffee.

Open a risk-free demo account with CMC Markets to practice trading commodities.

2. Choose your market and product

Decide which commodity (e.g. Brent, WTI, gold, natural gas, coffee) and whether you’ll trade a cash (spot) or forward/futures-style instrument. Check the spreads, volatility and the contract’s trading hours.

3. Form a directional view

Traders can go long when they believe prices may rise or short when they believe they may fall. Line up your thesis with macro data, inventory reports (e.g. EIA for oil), weather patterns and charts.

4. Set your position size

Size your positions relative to the account equity and volatility. Know the value per ‘point’ of movement for your preferred instrument so you can estimate profit and loss scenarios.

5. Manage risk before entry

Pre-define stop-loss and take-profit levels. Also, think about using guaranteed stop-loss orders (GSLOs) where available. For a premium, they can help you close at your specified price even in gapping markets – and the premium is refunded if the GSLO isn’t triggered.

6. Monitor positions

Track open trades and orders, and adjust your position to new information, like the latest crop reports or central-bank moves.

7. Close or let orders execute

Exit manually when your thesis plays out, or if it doesn’t. If you’ve preset orders, leave them to manage your trade unless conditions change materially.

If you’re just learning the mechanics, you can practice with a CFD demo account to get comfortable with order types and market rhythms.

Advantages and risks of commodity trading

Pros

• Diversification: Commodities often behave differently from shares or bonds, which means they may contribute to portfolio diversification in some market conditions.

• Inflation hedge potential: Some commodities, such as energy and metals, may act as potential hedges during inflationary periods, although their performance can vary over time. Gold is often viewed as a ‘safe haven’, meaning it is regarded as a store of value when financial markets are unstable or inflation expectations rise.

• Liquidity (in major contracts): Benchmarks like Brent, WTI, gold and natural gas can provide deep liquidity and tight spreads compared to less-traded assets.

• Volatility: Because commodity prices can move sharply, they may appeal to traders who are comfortable with higher risk and active market conditions.

Cons

• Volatility cuts both ways: Sharp, sudden moves – on headlines or weather, for example – can exceed your risk tolerance and trigger slippage if you’re unprotected.

• Demand and substitution risk: Shifts in consumption or technology can change a commodity’s role in the economy and affect its supply and demand balance. Digital imaging, for example, has significantly reduced the demand for silver in photography.

• Geopolitical and policy shocks: Conflicts, sanctions and trade tariffs can reroute supply chains and cause prices to whipsaw.

• Leverage risk (for CFDs): Trading on margin can increase both your gains and losses. Before trading, make sure you understand key details like margin requirements and close-out rules. You can lose all of your invested capital.

Why trade commodities with CMC Markets?

CMC Markets offers pricing on over 100 cash and forward commodity instruments – covering energy, metals and softs – with extended trading hours on popular benchmarks.

Our platform supports advanced order types (including GSLOs), and you’ll enjoy charting and mobile access, which are helpful for markets that trade almost around the clock.

Explore the full product line-up on the commodities page, learn in the CFD knowledge hub and then start practising with a demo account.

This article provides general information only. It has been prepared without taking account of your objectives, financial situation or needs. It is not to be construed as a solicitation or an offer to buy or sell any financial instruments, or as a recommendation and/or investment advice. It does not intend to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any financial instruments. You should consider your objectives, financial situation and needs before acting on the information in this article. CMC Markets believes that the information in this article is correct, and any opinions and conclusions are reasonably held or made on information available at the time of its compilation, but no representation or warranty is made as to the accuracy, reliability or completeness of any statements made in this article. CMC Markets is under no obligation to, and does not, update or keep current the information contained in this article. Neither CMC Markets nor any of its affiliates or subsidiaries accepts liability for loss or damage arising out of the use of all or any part of this article. Any opinions or conclusions set forth in this article are subject to change without notice and may differ or be contrary to the opinions or conclusions expressed by any other members of CMC Markets.