Commodity trading involves buying and selling physical goods and raw materials like oil, gas, gold, silver, and agricultural products. Precious metals, industrial metals, energy products, and agricultural goods are at the foundation of the global economy, with governments, companies, and individuals trading these on a daily basis.
However, active traders speculate on commodity prices without owning the physical goods. They can trade different types of financial products on stock exchanges, futures exchanges, or commodity trading platforms.
Trillions of dollars move through metals, energy, and agricultural markets every year, most of it routed through exchanges like the CME, the London Metal Exchange, and the Intercontinental Exchange. Market research firm Intel Market Research puts the sector’s value at $24.7 trillion in 2025, climbing toward $36.1 trillion by 2034 as standardized contracts keep enabling price discovery across both hard and soft commodities.
Commodities form one of the largest financial markets in the world, and here is how it works under the hood.
What Are Commodities?
Commodities are the physical goods that people dig out of the ground or those that are grown in the soil. You can think of them as the basic LEGO bricks used to build countless goods.
These raw materials are used to create most of the products consumers buy, from gasoline and food to electronics and clothing. They are usually traded in large volumes and form the foundation of many economies. For example, you can’t think of transportation, manufacturing, or tourism without oil, while many central banks hoard gold as a reliable reserve asset.
Many countries base their economies on commodities. For example, Saudi Arabia, Canada, and Norway are major oil producers, while Chile and Peru rely on their copper and precious metal reserves.
Types of Commodities
Commodities are generally split into two large groups: hard commodities, which are mined or extracted from the earth, and soft commodities, which are grown or raised.
Most traders speculate on the price of hard commodities, which represent the earth’s natural resources. They are categorized as:
- Energy: Crude oil, natural gas, heating oil, and coal.
Energy products are highly volatile and react promptly to supply disruptions and geopolitical events. - Precious metals: Gold, silver, platinum, and palladium.
Precious metals are often used as safe-haven assets and tend to become more expensive during periods of economic uncertainty. - Industrial metals: Copper, aluminum, zinc, iron ore, and lead.
Industrial metals are closely tied to the health of the global economy, increasing in price amid booming demand. For example, the emergence of artificial intelligence (AI) has boosted the price of copper to record levels.
Many commodity trading platforms also support soft commodities, which include agricultural products or livestock that are cultivated or farmed. The main types of soft commodities are:
- Grains and oilseeds: Wheat, corn, rice, soybeans, and oats.
- Soft crops: Coffee, sugar, cocoa, cotton, and orange juice.
- Livestock: Live cattle, feeder cattle, and lean hogs.
How Are Commodities Traded?
As mentioned earlier, most retail and institutional traders speculate on commodity prices without dealing with the physical goods. Instead, they can choose to buy or sell three types of financial instruments, including:
- Futures: These are standardized contracts traded on specialized futures exchanges. They require you to buy or sell a commodity at a predetermined price on a future date, basically locking in prices for future delivery. Yet, you can avoid deliveries by exiting earlier.
The world’s largest futures exchanges are operated by CME Group, which comprises the Chicago Mercantile Exchange (CME), the New York Mercantile Exchange (NYMEX), and COMEX. - Commodity ETFs: Exchange-traded funds invest in one or more commodities and trade as shares on traditional stock exchanges, such as the NYSE or Nasdaq.
- CFDs (Contracts for Difference): Most retail traders prefer CFDs because they have low entry barriers, offer high leverage to amplify gains, and allow them to speculate on rising or falling prices without owning the asset. CFDs usually track the prices of major futures contracts but are more accessible to beginners.
What Drives Commodity Prices?
As you could see, commodities are different, but their prices ultimately reflect the dynamics between supply and demand.
Some of the key supply drivers you should know about are weather and climate, geopolitical conflicts, and production cost changes. For example, droughts, floods, and severe storms can have a direct impact on agricultural goods and soft crops. Elsewhere, wars and trade disputes can disrupt major energy and metal supply chains, and we have already seen it with the US-Iran conflict and the Russia-Ukraine war.
On the demand side, economic growth remains the main driver. Rising GDP and industrial production mean more energy and raw metals are needed, which boost their prices.
The Final Note
Commodity trading helps investors and traders gain quick exposure to the world’s most important raw materials and goods, be it energy, precious metals, industrial metals, or agricultural products.
If you understand how commodities are priced and traded, you can make informed decisions and pick the financial instruments that suit your needs and risk profile.