What is Commodity Trading and How Does it Work?

What is Commodity Trading?

Commodity trading involves speculating on the price of a raw physical asset, such as gold or oil. Many factors, including supply and demand, will impact the market price as traders buy or sell a commodity CFD making a profit or a loss. 

When you trade commodities, you don’t take ownership of the underlying physical asset (for example, a bar of gold). Instead, you trade a “futures contract”, also known as Contracts for Difference (CFDs) that gets derived from the real-time price movements of the underlying asset. So if the purchase price of gold goes up, the traded price does too. 

While this concept might sound confusing at first, a CFD trade is simply an agreement between the buyer and seller to complete a transaction for a set price and duration. Find out more about how to trade commodities.

To complete a commodity CFD trade, you need the following details:

• Contract size: The amount of the commodity stated in the contract – either metric/traditional units (barrel/bag) need to be specified.
• Price: The price of the contract is determined through fair price discovery between the buyer and the seller. In the case of a futures contract, it can specify the price to be paid at a predetermined date in the future.

What are the types of commodities on the market?

Commodities can be categorised into two types: 

• Hard commodities: A hard commodity is mined from the earth or extracted from natural resources.
• Soft commodities: A soft commodity can be grown on agricultural farms or extracted from another parent substance.

These can be further split into four sub-categories: metals, energy, agriculture and livestock.

What commodity CFDs are available at Axi?

The following table shows all the commodity cash CFDs, commodity future CFDs and bullion spot CFDs available to trade with Axi.