What are commodities?

Alongside stocks, bonds, currencies and other underlying assets, commodities are another asset class that traders can trade CFDs on. A commodity is any raw material that can be removed from the Earth or grown on it, such as wheat, corn, livestock, precious metals, oil, and countless others.

Numerous factors impact the prices of commodities around the world because they’re used for just about everything. Oil, for example, is connected to the automotive sector, global weather patterns, the US dollar, military conflicts, economic sanctions, and the shifting relationships between countries that represent its biggest producers and refiners. Overall, however, it’s supply and demand that influence the market most.

Past and Futures

The commodities futures market was originally invented to help producers of the commodity reduce their exposure to rapidly changing prices by agreeing to a delivery of a certain amount of a commodity at a fixed price at a specified date in the future, hence the term futures.

For agricultural commodities, this is especially relevant due to the significant impact that weather can have on crops like wheat and corn. By taking a short position (selling futures) in corn, a farmer whose crop suffers due to weather-related circumstances can offset their losses during a bad season, for example.

Commodities Contracts

Obviously, it’s not possible to transport bushels of wheat every time a buyer speculates on their future price, so there is a secondary market where contracts for specific quantities of commodities can be bought and sold instead. One contract typically represents 100 units of the underlying asset, but this varies widely by type of commodity.

The secondary market is run through numerous exchanges throughout the world, such as the CME, short for the Chicago Mercantile Exchange, and NYMEX which stands for the New York Mercantile Exchange. Some exchanges specialize in certain types of commodities, but traders don’t need to operate through them to take advantage of shifting prices.

With Investous, you can speculate on the prices of commodities with Contracts for Difference (CFDs), allowing traders to participate in the futures market with derivatives instead of the physical assets themselves.

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Risk Warning: Contracts for difference (‘CFDs’) is a complex financial product, with speculative character, the trading of which involves significant risks of loss of capital. Trading CFDs, which is a marginal product, may result in the loss of your entire balance. Remember that leverage in CFDs can work both to your advantage and disadvantage. CFDs traders do not own, or have any rights to, the underlying assets. Trading CFDs is not appropriate for all investors. Past performance does not constitute a reliable indicator of future results. Future forecasts do not constitute a reliable indicator of future performance. Before deciding to trade, you should carefully consider your investment objectives, level of experience and risk tolerance. You should not deposit more than you are prepared to lose. Please ensure you fully understand the risk associated with the product envisaged and seek independent advice, if necessary. Please read our Risk Disclosure document.

 

Please click here for the CFDs risk warning which specifies the % of retail investor accounts that lose money on a 12 month period on our platform.

 

Regional Restrictions: F1Markets Limited offers services within the European Economic Area (excluding Belgium) and Switzerland.

 

F1Markets Limited does not issue advice, recommendations or opinions in relation to acquiring, holding or disposing of any financial product. F1Markets Limited is not a financial adviser and all services are provided on an execution only basis.