{"id":17432,"date":"2023-05-19T07:38:35","date_gmt":"2023-05-19T07:38:35","guid":{"rendered":"https:\/\/blog.vtmarkets.com\/?p=9380"},"modified":"2025-03-06T07:32:05","modified_gmt":"2025-03-06T07:32:05","slug":"what-are-commodities-how-do-you-trade-them","status":"publish","type":"post","link":"https:\/\/www.vtmarketsglobal.com\/en\/learn\/17432\/","title":{"rendered":"What Are Commodities &amp; How Do You Trade Them?\u00a0"},"content":{"rendered":"\n<h2 class=\"wp-block-heading\"><strong>What are commodities?<\/strong>&nbsp;<\/h2>\n\n\n\n<p>In simple terms, <strong>commodities<\/strong> are the raw materials that are harvested, collected, and processed into everyday goods and services used by humans.&nbsp;<\/p>\n\n\n\n<p>Unlike stocks or bonds, commodities are physical materials and goods. Trading commodities can be potentially profitable due to their price fluctuations, but they also carry more risk compared to bonds and the stock market. Successful commodities trading requires specialised knowledge and staying informed about the market.&nbsp;<\/p>\n\n\n\n<p>Before you start trading commodities, you\u2019ll need to choose which commodity you\u2019re interested in. They are typically divided into two categories.&nbsp;<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><sup><strong>Hard commodities<\/strong>: These are natural resources extracted from the earth, such as natural gas, coal, oil, and precious metals like gold and silver.&nbsp;<\/sup><\/li>\n\n\n\n<li><sup><strong>Soft commodities<\/strong>: Unlike hard commodities, soft commodities are grown or harvested. Examples include livestock like hogs and cattle (used for food, leather, gelatine) and agricultural crops like coffee, cocoa, wheat, palm oil, and timber.&nbsp;<\/sup><\/li>\n<\/ul>\n\n\n\n<p><a href=\"https:\/\/www.vtmarkets.com\/trading\/markets\/energies\/\" target=\"_blank\" rel=\"noopener nofollow\" title=\"\">hard commodities<\/a>, <a href=\"https:\/\/www.vtmarkets.com\/trading\/markets\/soft-commodities\/\" target=\"_blank\" rel=\"noopener nofollow\" title=\"soft commodities\">soft commodities<\/a><\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large is-resized\"><img decoding=\"async\" src=\"https:\/\/www.vtmarketsglobal.com\/en\/wp-content\/uploads\/sites\/6\/2023\/05\/e152b33a509696b8556be245cd42eaf3832eeaef-1-1-1024x576.jpg\" alt=\"\" class=\"wp-image-9406\" style=\"aspect-ratio:1.783068783068783;width:846px;height:auto\" \/><figcaption class=\"wp-element-caption\"><sup><sub>source: edushots.com<\/sub><\/sup><\/figcaption><\/figure><\/div>\n\n\n<h2 class=\"wp-block-heading\"><strong>How to trade commodities<\/strong>&nbsp;<\/h2>\n\n\n\n<p>Commodities trading is one of the oldest forms of trade and is the original basis for what modern investing has become today. The process might have started with farmers negotiating prices for their goods outside of harvest time, but these days, wanting to trade commodities involves a more sophisticated process.&nbsp;<\/p>\n\n\n\n<p>When it comes to trading commodities, there are several options to consider:&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Commodities <\/strong><strong>futures<\/strong>&nbsp;<\/h2>\n\n\n\n<p>Futures contracts allow investors to buy and sell commodities at a predetermined future price. Profits can be made from the difference between the agreed price and the actual price when the contract expires. However, this approach is based solely on price changes and does not involve the physical goods themselves.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Purchasing <\/strong><strong>physical<\/strong><strong> <\/strong><strong>commodities<\/strong>&nbsp;<\/h2>\n\n\n\n<p>Some commodities can be physically acquired by investors. However, this option is typically reserved for high-value commodities like precious metals, as it can be more costly compared to other investment methods.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Commodities <\/strong><strong>stocks<\/strong>&nbsp;<\/h2>\n\n\n\n<p>Trading commodities stocks allows investors to gain exposure to the commodities market through companies producing the assets. The relationship between commodity prices and stock prices can vary, and it&#8217;s essential to understand the underlying principles of each company.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Commodities ETFs<\/strong>&nbsp;<\/h2>\n\n\n\n<p>Exchange traded funds (ETFs) offer an opportunity to diversify your portfolio by holding a basket of commodities. ETFs aim to mimic the price movements of the underlying commodities, but they may not always perfectly reflect the actual market conditions.&nbsp;<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large is-resized\"><img decoding=\"async\" src=\"https:\/\/www.vtmarketsglobal.com\/en\/wp-content\/uploads\/sites\/6\/2023\/05\/Burning-of-Iraqi-oil-fields-scaled-1-1-1024x673.jpeg\" alt=\"\" class=\"wp-image-9408\" style=\"aspect-ratio:1.518624641833811;width:838px;height:auto\" \/><figcaption class=\"wp-element-caption\"><sup><sub>Iranian oil refinery on fire during the war between Iran and Iraq, 27th September 1980 (Photo by Henri Bureau\/Sygma\/Corbis\/VCG via Getty Images)<\/sub><\/sup><\/figcaption><\/figure><\/div>\n\n\n<h2 class=\"wp-block-heading\"><strong>Factors <\/strong><strong>that might affect<\/strong><strong> <\/strong><strong>commodity<\/strong><strong> <\/strong><strong>trade<\/strong>&nbsp;<\/h2>\n\n\n\n<p>To trade commodities successfully, it&#8217;s crucial to consider various factors that can influence the market:&nbsp;<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><sup><strong>Geopolitics<\/strong>: International political situation can significantly impact commodities trading worldwide. For example, the most recent war in Ukraine has affected the <a href=\"https:\/\/www.dw.com\/en\/five-facts-on-grain-and-the-war-in-ukraine\/a-62601467\" target=\"_blank\" rel=\"noopener nofollow\" title=\"Five facts on grain and the war in Ukraine\">grain prices<\/a>. Or in the past several decades, the political situation in the Middle East has been closely tied to the performance of oil as a commodity.&nbsp;<\/sup><\/li>\n\n\n\n<li><sup><strong>Domestic politics<\/strong>: Changes in labour laws, regulations, or policies within a country of origin can have a significant impact on commodity prices.&nbsp;<\/sup><\/li>\n\n\n\n<li><sup><strong>Weather<\/strong>: Weather events such as rainfall, droughts, or extreme temperatures can impact commodity values. Unpredictable weather conditions can disrupt production, affecting supply and demand.&nbsp;<\/sup><\/li>\n\n\n\n<li><sup><strong>Market competition<\/strong>: Technological advancements and the entry of new competitors can disrupt traditional commodity markets. For instance, the rise of renewable energy sources can affect the demand for fossil fuels.&nbsp;<\/sup><\/li>\n\n\n\n<li><sup><strong>Seasonality<\/strong>: Soft commodities like agricultural crops and livestock can be influenced by seasonal factors. Harvest and slaughter times can create oversupply or scarcity in the market, affecting prices.&nbsp;<\/sup><\/li>\n\n\n\n<li><sup><strong>Macroeconomics<\/strong>: Economic indicators such as GDP, inflation rates, interest rates, and industry performance can have a significant impact on commodity prices.&nbsp;<\/sup><\/li>\n\n\n\n<li><sup><strong>Other environmental factors<\/strong>: Commodities are susceptible to disruptions in the supply chain caused by unforeseen events. Natural disasters, accidents, or shipping disruptions can affect commodity markets. Events like the 2021 Suez Canal obstruction, in which the Ever Given blocked the crucial shipping route for six days, is one such example of this.&nbsp;<\/sup><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Building a strong portfolio with trade commodities<\/strong>&nbsp;<\/h2>\n\n\n\n<p>Commodities trading offers unique opportunities but also carries higher risks. Many investors choose to allocate a portion of their portfolio to commodities trading, typically around 20%. This helps balance risk and potential gains while diversifying their investment portfolio.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Ready to create your commodity trading account?<\/strong>&nbsp;<\/h2>\n\n\n\n<p>If you\u2019ve been following a commodities market, buffing up on your knowledge of political and environmental factors that might affect it and reading expert insights from financial journalists, you may be eager to open a commodity trading account. At <strong><a href=\"https:\/\/www.vtmarkets.com\/\" target=\"_blank\" rel=\"noopener nofollow\" title=\"VT Markets\">VT Markets<\/a><\/strong>, we offer beginner-friendly and globally recognised <strong>trading platforms<\/strong> in a user-friendly interface, so you can trade commodities using a transparent and trusted forex trading environment that\u2019s totally secure.&nbsp;<\/p>\n\n\n\n<p>Want to know more about how we\u2019ve designed our systems to meet the needs of clients? <strong><a href=\"https:\/\/www.vtmarkets.com\/company\/about-us\/contact-us\/\" target=\"_blank\" rel=\"noopener nofollow\" title=\"Contact us\">Get in touch<\/a><\/strong> and we\u2019ll help you with anything you need, from choosing your account type to managing your investment size and leveraging the right commodities trading options to suit you.&nbsp;<\/p>\n\n\n\n<h5 class=\"wp-block-heading\"><strong>Summary:<\/strong>&nbsp;<\/h5>\n\n\n\n<ul class=\"wp-block-list\">\n<li><sup><sub>Commodities are raw materials used to produce goods and services.&nbsp;<\/sub><\/sup><\/li>\n\n\n\n<li><sub><sup>Commodities can be divided into two categories: hard commodities (natural resources like oil and precious metals) and soft commodities (agricultural crops and livestock).&nbsp;<\/sup><\/sub><\/li>\n\n\n\n<li><sup><sub>Trading commodities involves specialized knowledge and staying informed about the market.&nbsp;<\/sub><\/sup><\/li>\n\n\n\n<li><sup><sub>Options for trading commodities include futures contracts, purchasing physical commodities, trading commodities stocks, and investing in commodities ETFs.&nbsp;<\/sub><\/sup><\/li>\n\n\n\n<li><sup><sub>Factors that can affect commodity trade include geopolitics, domestic politics, weather conditions, market competition, seasonality, macroeconomics, and environmental factors.&nbsp;<\/sub><\/sup><\/li>\n\n\n\n<li><sup><sub>Investors often allocate a portion of their portfolio (around 20%) to commodities trading to balance risk and potential gains.&nbsp;<\/sub><\/sup><\/li>\n\n\n\n<li><sup><sub>VT Markets offers beginner-friendly and globally recognized trading platforms for commodity trading.&nbsp;<\/sub><\/sup><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>What are commodities?&nbsp; In simple terms, commodities are the raw materials that are harvested, collected, and processed into everyday goods and services used by humans.&nbsp; Unlike stocks or bonds, commodities are physical materials and goods. Trading commodities can be potentially profitable due to their price fluctuations, but they also carry more risk compared to bonds <a href=\"https:\/\/www.vtmarketsglobal.com\/en\/learn\/17432\/\" class=\"read-more\">Continue Reading<\/a><\/p>\n","protected":false},"author":5,"featured_media":9929,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[45],"tags":[],"class_list":["post-17432","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-learn"],"acf":[],"aioseo_notices":[],"featured_image_src":"https:\/\/www.vtmarketsglobal.com\/en\/wp-content\/uploads\/sites\/6\/2023\/05\/Website-Article-Photos-2024-02-26T150734.806.png","featured_image_src_square":"https:\/\/www.vtmarketsglobal.com\/en\/wp-content\/uploads\/sites\/6\/2023\/05\/Website-Article-Photos-2024-02-26T150734.806.png","author_info":{"display_name":"luna","author_link":"https:\/\/www.vtmarketsglobal.com\/en\/author\/luna\/"},"_links":{"self":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/posts\/17432","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/comments?post=17432"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/posts\/17432\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/media\/9929"}],"wp:attachment":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/media?parent=17432"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/categories?post=17432"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/tags?post=17432"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}