What is commodity trading and how does it work?
Learn how to trade commodities CFDs, including where to trade them, trading hours, types of commodities for traders, strategies, and how to trade commodities CFDs.
What is commodity trading?
Commodity trading involves speculating on the price movements of raw materials – such as oil, gold, wheat or coffee – using derivatives such as contracts for difference (CFDs), which means you never take physical delivery of the goods.
These markets are driven by supply and demand, with prices influenced by factors like weather, geopolitics, and global economic trends. Traders use commodity CFDs to speculate on price movements, hedge risk, or help stabilise supply chains for essential resources.
CFDs are complex instruments which – when traded on margin – can amplify both potential losses and potential gains. Ensure you understand how CFDs work and that you can afford to take the risk before trading.
Which commodity CFDs can I trade?
When you trade commodity CFDs you have a wide variety of assets at your disposal – from raw materials and agricultural products to energy resources and metals. Generally, commodities can be divided into four main categories:
- Agricultural commodity CFDs: these include food crops, such as cocoa, cotton, corn and coffee, livestock, like pigs and cattle, and industrial crops, such as palm oil and lumber.
- Energy commodity CFDs: these include natural gas, crude oil and gasoline, coal, uranium, ethanol and electricity.
- Metal commodity CFDs: cover base metals (copper, iron, zinc, aluminium, nickel, etc.) and precious metals (gold, silver, palladium and platinum).
- Environmental commodity CFDs: these include renewable energy certificates, carbon emissions allowances.
How does commodity CFD trading work?
Commodity CFD trading involves speculating or hedging on the price movements of raw materials such as oil, gold, or wheat without ever owning the underlying commodity itself.
At Capital.com you do this exclusively via contracts for difference (CFDs), derivatives that mirror the commodity’s price. CFDs are complex financial instruments and trading on margin can amplify potential losses and potential gains.
Spot price CFDs vs futures CFDs
When trading commodity CFDs, you can take positions based on either the spot price (the current market price for immediate settlement) or a futures price (the current market price for settlement at a future date).
Spot-priced CFDs are often used for short-term trading, with tighter spreads and no expiry. Futures-priced CFDs are popular for hedging or trading around key contract dates, as they reflect broader market expectations over time.
When you trade futures CFDs with us, you’ll see the commodity listed with its expiry date, meaning you’re locking in today’s price through a contract that references settlement on that future date. Meanwhile, for spot markets we don’t show this date, meaning you’re trading the spot-priced CFD for immediate settlement.
Find out more about futures trading.
Long and short positions
Traders might open a buy (long) position when anticipating the price of a commodity CFD to rise, or a sell (short) position if they expect it to fall. For example, a trader could short natural gas CFDs ahead of a mild winter, anticipating lower demand and falling prices. CFDs can be traded on margin, which means that gains and losses are magnified relative to your deposit.
Price drivers
Commodity CFD prices are influenced by supply and demand, weather events, geopolitical factors such as conflict or trade policy, production output, and macroeconomic data. These factors can lead to sharp price movements and high volatility.
Speculation and hedging
Traders may speculate on short-term price movements or hedge existing exposure. For example, a coffee producer might hedge against falling prices, while a retail trader might speculate on gold spot CFDs as a safe-haven asset.
Trading access
With an online brokerage account, retail traders can access CFDs whose prices derive from global markets – such as CME Group or ICE – and trade a range of commodity references electronically, often with flexible position sizes.
What is an example of commodity CFD trading?
Gold spot CFD trade – long position
Let’s say gold is trading at $2,000 per ounce.
After conducting some fundamental analysis, you believe the price of gold will rise. You open a long CFD position equivalent to 20 ounces of gold. With a margin requirement of just 5%, you'd only need to put down $2,000 (5% of the total exposure: 20 ounces × $2,000 = $40,000).
Over the next day, gold's price increases by $20 per ounce to $2,020, and you close your position.
You've made a profit of $400 ($20 increase × 20 ounces), minus any overnight funding charges if applicable.
However, if the price of gold decreases by $20 per ounce to $1,980, you would incur a loss of $400 ($20 decrease × 20 ounces), plus any applicable overnight funding charges. Because CFDs are leveraged, that entire $400 loss comes out of your deposited $2,000.
Gold spot CFD trade – short position
Now suppose gold is trading at $2,000 per ounce, but this time you expect the price to fall due to stronger-than-expected economic data reducing gold's safe-haven appeal.
You open a short CFD equivalent to 20 ounces of gold, with the same total exposure of $40,000. With the margin at 5%, again you only need $2,000 to open the position.
Later that day, gold’s price falls by $20 per ounce to $1,980, and you close your position.
You’ve made a profit of $400 ($20 × 20 ounces), minus the spread and any overnight funding charges if applicable.
But if the price had instead risen by $20 per ounce to $2,020, your position would lose $400 ($20 × 20 ounces), plus trading costs.
Where can you trade commodities?
Commodities trading primarily takes place on global exchanges and in over-the-counter (OTC) markets. Retail traders can access these markets indirectly via CFDs offered by regulated brokers – like us – and speculate on commodity prices without owning the underlying assets.
Commodities CFDs, such as those on our platform, reference some of the largest and most influential commodity exchanges globally, including:
- CME Group: trades agricultural commodities (wheat, corn), energy (US crude oil, US natural gas) and precious metals (gold, silver) – electronic trading via CME Globex.
- Intercontinental Exchange: specialises in energy commodities like Brent crude oil, natural gas, and agricultural products such as coffee and cocoa – electronic trading via ICE Futures.
- London Metal Exchange: focuses on industrial metals such as copper, aluminium, zinc, and nickel – electronic trading via LMEselect.
Retail traders can access these exchanges through CFDs on our platform, which provides live price charts, flexible position sizes, and leverage options.
Learn more about CFDs in our contracts for difference (CFD) trading guide.
What are the commodity market trading hours?
Commodity trading operates nearly 24 hours a day, five days a week. The prices of our CFDs track multiple global exchanges that open and close at different times. You’re not buying the underlying commodity; you’re trading a derivative whose pricing mirrors the exchange session.
Here are the trading hours for key commodities markets in coordinated universal time (UTC)*:
| Exchange | Summer hours | Winter hours |
|---|---|---|
| CME Globex | Sunday 10pm - Friday 9pm (break 9-10pm) | Sunday 11pm - Friday 10pm (break 10-11pm) |
| ICE Futures | Monday 12am - Friday 10pm (break 9:05 pm - 10:25pm) | Monday 1am - Friday 11pm (break 10:05 pm - 11:25pm) |
| LMEselect | Monday 12am - Friday 6pm | Monday 1am - Friday 7pm |
Commodities trading hours vary for each commodity. Visit the specific commodity CFD market page to find the latest trading hours for each asset.
For weekend trading hours, visit our comprehensive weekend trading hours page.
*These schedules are subject to change due to factors such as public holidays and exchange-specific maintenance periods.
Commodity CFD trading: What are the risks and benefits?
CFDs are derivatives and traded on margin, which can magnify both gains and losses. Commodity trading carries both potential benefits and inherent risks, due to price volatility and commodity-specific conditions.
Diversification
Commodity CFDs may offer portfolio diversification, as they have historically shown a low correlation with traditional assets like stocks and bonds. However, in broad market sell-offs or during systemic shocks, correlations can increase, reducing diversification benefits.
Inflation hedge
CFDs on commodities such as gold have historically acted as a hedge against inflation, potentially preserving purchasing power. However, not all commodities behave consistently during inflationary periods, and their effectiveness as a hedge can vary.
Price volatility
Frequent price swings can create short-term trading opportunities, particularly for active traders using technical strategies. At the same time, sharp and unpredictable price movements can lead to significant losses, especially in leveraged positions.
Leverage and access
Trading commodities via CFDs allows exposure with relatively small upfront capital, increasing potential returns. However, leverage can also amplify potential losses, trigger margin calls or force position closures if the market moves against you.
External factors
Commodity prices are influenced by global events such as supply disruptions, weather, and geopolitical developments, often leading to substantial price moves and increased uncertainty. While these factors can present trading opportunities, they also make markets more difficult to predict.
What are some commodities CFD trading strategies?
Commodity CFD traders can use a range of strategies, using a combination of technical and fundamental analysis, to help identify and confirm potential trends with effective risk management.
Scalp trading strategy
Scalping is a short-term trading strategy where traders execute multiple trades daily, aiming for small profits from minor price fluctuations. Scalpers typically hold CFD positions for minutes or even seconds, relying heavily on technical indicators, price action, and real-time market data.
Trend trading strategy
Trend trading involves identifying and trading in the direction of an established market trend. Trend traders typically use technical indicators such as moving averages and other tools to confirm the strength and direction of the trend before opening a long (buy) CFD or short (sell) CFD position.
Swing trading strategy
Swing trading targets short to medium-term price movements. Swing traders might hold CFD positions from a few days up to several weeks – using both fundamental and technical analysis to calculate potential entry and exit points based on broader market trends.
Day trading strategy
Day traders open and close positions within the same trading day, contrasting with swing traders who may hold CFD positions for days or weeks. They might aim to capture gains from short-term price volatility, frequently using technical analysis tools such as volume indicators to inform trading decisions.
Discover more trading strategies on our comprehensive trading strategies page.
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