How to Trade Commodities with CFDs: CFD on Commodities

It is not only currencies that Forex brokers allow you to trade. Some accounts give access to the global commodity market. While the term is most commonly associated with complicated futures, a special instrument known as Contract for Difference makes profit generation possible for almost anyone.

How to Trade Commodities With CFDs

The market for commodities is one of the oldest markets for money. Traders can buy and sell goods on the futures market or through derivatives like Contracts for Difference (CFDs). There are a few things that make trading commodities through a CFD service stand out. These include needing less money than with futures trading and being able to trade on markets that are both going up and going down. In this article, we’ll talk about how to trade commodities using CFDs.

Commodities are bought and sold on exchanges like the London Metal Exchange (LME). Chicago Mercantile Exchange (CME), the New York Mercantile Exchange (NYMEX).

“Fungible” refers to goods that are all the same quality or grade. This means that they can be priced based on a standardised quality and quantity.

Keynote: What is commodity trading?
Commodities are things that are mined, grown, raised, or processed that come from nature or agriculture. So-called “soft” commodities, like meat, coffee, wheat, and cotton, are grown or raised, while “hard” commodities, like coal, ore, precious metals, oil, and gas, are mined or extracted.

Futures contracts, which are an agreement to buy or sell a commodity at a certain price on a certain date in the future, are the most common way to trade in commodities. Most of the time, trading in commodities and futures is a shorter-term investment than investing in stocks.

CFDs on Products

Contracts for difference are another way for modern traders to buy and sell goods (CFDs). CFDs are a good way to trade popular commodities like Oil, Natural Gas, Gold, or Silver because they have higher leverage.

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This means that a trader can use less capital to get more exposure to an underlying instrument, which means there is a greater chance of both profits and losses.

CFDs are a type of derivative product that lets traders bet on how the price of the underlying instrument will move without owning the underlying instrument itself.

The most commonly traded commodities?

  1. WTI Crude Oil.
  2. Brent Crude Oil.
  3. Natural Gas.
  4. Soybeans.
  5. Corn.
  6. Gold.
  7. Copper.
  8. Silver.

Who Buys and Sells Goods?

In the past, the only people who could trade commodities were the people who made or bought them, or speculators like investment banks, fund managers, and other financial institutions. In recent years, the commodity market has become much easier for the average retail trader to get into. This makes it possible for them to bet on how the prices of the goods traded on the market will change without actually owning them.

Basics of Commodities CFD Trading

Thanks to CFDs, the tool is accessible to individuals who act as retail traders. There is no need to own any material resources. All profits are derived from price movements.

CFDs let you trade with a loan. This means that you only have to put down a certain percentage of a trade’s total value.

When you trade CFDs instead of futures contracts, you can use a lot less capital. CFDs are also a simple way to make money from markets that go up and markets that go down. For example, a trader can still make money when the market goes down if they open a “Sell” (or “short”) position, which means they want to sell high and buy back low.

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The difference between the price you sell it for and the price you buy it for will be your profit.

With CFDs, one can easily benefit from changes in the value of crude oil, natural gas, gold or silver. The leverage is high, which means it is possible to use a portion of borrowed capital provided by the broker.

This maximizes potential returns. Hence, the concept may be defined as a derivative product allowing profits from speculation on prices of commodities with no actual ownership required.

Benefits for Retail Traders

Consider adding CFDs to your portfolio of financial instruments. This is a perfect way to diversify your selection. For instance, if the currencies you trade are underperforming, profits from trading CFD Commodities may compensate for the loss made. Here are other advantages explained.

1.   Trading on margin

This means you do not have to use your own funds only. The arrangement allows maximizing returns, as you can trade larger volumes than you can actually buy. This is an obvious advantage over the conventional futures contracts.

2.   Benefiting from market swings

This is a straightforward method of profiting from changing markets. For instance, a falling market can bring you profit if you open a ‘Sell’ position. This means you will sell high and buy low, which is the general logic of stock trading.

Commodities: Historical Perspective

The marketplace originated centuries ago. Merchants sold basic resources like wheat or gold across national borders. What happened in Ancient Egypt is still happening today. The category of commodities includes agricultural produce, energy sources, and metals.

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Hence, traditionally, the parties engaged were consumers and producers of traded resources. For instance, a mining company could sell base metals to a shipbuilding firm. Other participants include speculators (financial institutions) and day traders who either buy or sell commodities to profit from price shifts.

In the past, it was only possible to engage in the trading of futures. These are legal agreements to buy or sell a certain resource at a certain price and at a certain time. The arrangement requires a sizeable investment.

How to Start Trading

Essentially, CFD traders use the same digital platforms as currency traders — for example, MetaTrader 5. Thanks to the existence of mobile apps, trading and market analysis may be done from any location. It is also necessary to have a special type of brokerage account. If you are unfamiliar with the basics, use a free demo account to learn the ropes before investing your own money.


Regulated Online Brokers for Commodity Trading in India