Commodities are raw materials or primary agricultural products that are bought and sold in large quantities on commodity exchanges. Their price is dictated by supply and demand forces, and their underlying price can be traded using financial derivatives such as CFDs, or they can be invested in through physical ownership of the asset. Broadly, commodities can be categorised into four main groups, soft, hard, livestock and energy.
There are four broad categories, soft commodities, hard commodities, livestock and energy.
Yes, you can invest in commodities in various ways. You can use futures and options contracts, as well as other avenues such as commodity mutual funds, not to mention physically buying assets such as gold in the hope they increase in value. Investing in commodities is distinct from trading them, where in the latter case you can speculate on the underlying price using instruments such as CFDs. This means you don’t own the asset itself, and can take a position on its price falling as well as rising. CFDs are typically traded on margin, which means that you can gain exposure to larger positions with a relatively small outlay. This amplifies potential profits, but also potential losses.
The three main global commodities markets are: the CME Group (formed from the merger of the Chicago Mercantile Exchange and the Chicago Board of Trade), the Intercontinental Exchange and the London Metal Exchange.
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