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Best Commodity Trading Brokers

Written by Miro Nikolov
Miro Nikolov is the co-founder of TradingPedia.com and BestBrokers.com. His mission is to help people make profitable investments by giving them access to educational resources and analytics tools.
, | Updated: December 12, 2024

The asset class of commodities is well-liked among the global trading community as prices of goods and materials can be volatile, creating opportunities for profits by going long or short. Our team of expert traders tested several regulated and trustworthy commodity trading brokers and compiled a toplist with the best among them. Each commodity broker received a quality score based on several factors, including Trustpilot rating, regulation, fees and commissions, available trading platforms, customer service and more.

  1. Fusion Markets
    Rating: 4.9
    74-89% of retail CFD accounts lose money
  2. Axi
    Rating: 4.8
    The vast majority of retail client accounts lose money
  3. FP Markets
    Rating: 4.7
    73.85% of retail investor accounts lose money
  4. Pepperstone
    Rating: 4.6
    75.5% of retail investor accounts lose money
  5. Global Prime
    Rating: 4.5
    74-89% of retail CFD accounts lose money
  6. XM Group
    Rating: 2.9
    72.82% of retail investor accounts lose money

Commodities are naturally occurring goods or materials that play a key role in many aspects of people’s daily lives and power the world economy. Because of their constantly-changing prices, commodities offer some unique opportunities for traders but getting the necessary knowledge in order to make a profit does not happen overnight.

Normally, traders tend to examine the commodities market when they are looking for a way to diversify their portfolios beyond traditional securities, and to achieve this, they add different asset classes.

It is worth mentioning, however, that trading commodities might carry more risk when compared to trading conventional assets like stocks and bonds because there are lots of factors that have an effect on supply and demand. Human-made and natural disasters, epidemics, and weather patterns are only some of the uncertainties that can affect the market.

Formerly, commodities were mainly preferred by seasoned traders because getting exposure to the market required lots of time, expertise, and money. Today, the market is far more sophisticated, and there are many more opportunities to participate in the commodities market. The list of tradable commodities is much longer, and there are exchanges scattered almost all over the globe that are available around the clock.

How Commodity Trading Works for Traders and Brokers

How Commodities Trading WorksCommodities fall into four main categories, including livestock, energy, metals, and agricultural products. As opposed to bonds and stocks that only exist as financial contracts, commodities are physical raw materials that are bought, sold, and traded in markets. In simple terms, while trading commodities, traders attempt to make the most out of the supply and demand trends.

Commodities have great importance in daily life and can be divided based on their purposes or grouped together as soft and hard ones. Hard commodities can be defined as natural resources that must be mined or extracted and these include oil, copper, natural gas, and gold. Soft commodities are grown and harvested, and some such are sugar, wheat, coffee, corn, and cocoa, among others.

Investing in commodities is possible in multiple ways, and ETFs, futures contracts, options, and CFDs are among the options traders have when they want to play the market. Before you take up commodities trading, you should make sure that you fully understand how your broker of choice makes money. Thus, brokers will charge a commission or spread in exchange for executing the order. Depending on the broker traders have chosen, they might also face deposit, withdrawal fees, and inactivity fees, among others.
  1. Commodity trading is all about exchanging different assets, which, on most occasions, is done through futures contracts. Their price is based on the price of the underlying physical commodity, and by selling or buying these contracts, traders will focus on the price of the chosen commodity at a specific time in the future. Thus, if traders think that the price of their commodity of choice will fall, they will go short or sell the futures. When they think that prices will go up, traders will go long, which is to say that they will buy futures.
  2. Many traders that are interested in entering the market prefer to achieve this through stocks of companies that are in some way related to the commodity of their choice. These might be mining companies, refineries, drilling companies, or smelters, among others. The main reason why traders tend to pick commodity stocks over futures is that they are less susceptible to large price swings. Another advantage of investing in stocks when traders are looking to enter the market is that typically, the information about companies’ financial situation is readily available. Still, what traders should consider is that stock prices are also influenced by factors that have nothing to do with the commodity they have decided to trade.
  3. When making physical commodities purchases traders will get possession of the physical asset itself. Unlike futures, when making physical commodity purchases, traders will get jewelry, coins, or bars, depending on the asset they have picked. The considerably higher transaction costs are what traders should keep in mind about this way of getting exposure to the market.
  4. Commodities ETFs and ETNs – exchange-traded funds and notes can also be based on commodities, and they put together money from investors into a larger portfolio. In this way, by making a small investment, traders will track the price of the commodity they prefer or even a basket of commodities. Without a doubt, these are low-cost opportunities, and the investment traders will be required to make will be considerably smaller in comparison with building the portfolio on your own. Yet, what traders should remember is that they might not always be able to perfectly keep up with the price of their chosen commodity.
  5. Trading commodities with contracts for difference – trading commodities via CFDs is yet another efficient way to get exposure to the market. Many modern-day commodities investors prefer CFDs because of the higher leverage, thanks to which they can get greater exposure to the market, using less capital. In spite of the increased profit potential, traders should not forget that the loss potential will go up as well. The contracts for difference are derivatives products that make it possible for traders to speculate on the price of their commodity of choice without taking actual ownership of it.
  6. Commodity pools and managed futures have a lot in common with mutual funds, and they are private funds that can be invested in commodities. Unlike mutual funds, commodities pools and managed funds are not publicly traded. In spite of the fact that the potential profit can be quite handsome, traders should not overlook the higher management costs.

Why Commodities Prices Change

Why Commodities Prices ChangeThe commodities market is a highly volatile one, and for this reason, traders should constantly adjust the strategies they are using. Many traders tend to turn to the market when they are looking for new opportunities, but the factors that drive commodity prices are what many of them tend to overlook.

There are several reasons why the commodities market is so highly volatile, and as we mentioned already, supply and demand are the first factors to consider. Economic growth, government policies, geopolitical situations, and currency movements might also be among the reasons why commodity prices move.

Weather patterns also have a decisive role when determining commodity prices, especially when soft commodities are concerned. Storage costs and transportation also play a part when shaping commodity prices.

Commodity Trading Brokers

Commodity Trading Brokers

These days, there is a massive variety of commodity trading brokers, and this might make it a challenge for traders to tell the worthwhile platforms apart from the rest of the brokers. Therefore, we have compiled a list of the features traders should pay attention to when picking a commodity trading platform.

Variety of tradable instruments

First, traders can judge the quality of the broker by the variety of commodities the company has added to its portfolio. When searching for brokers’ commodity CFDs trading portfolios, traders may encounter separate categories for metals, energy resources, and soft commodities and benefit from price fluctuations without ownership of the underlying assets.

Gold and silver, for example, are commonly traded in pairs with currencies such as EUR, USD, and AUD. Based on their category, whether retail or professional, traders will use different leverage and will be charged accordingly.

Regulation

Additionally, traders should ensure that they are dealing with an authorized company that adheres to all operational guidelines and is exceptionally strict concerning the protection of its users.

Traders are advised to register accounts with properly regulated commodity brokers so they can take advantage of these customer protections and trade in a fair and secure trading environment. Depending on the jurisdictions they operate in, commodity brokers can be licensed by several financial regulators.

The commodity market in the USA is under the regulation of the Commodity Futures Trading Commission. The Australian Securities and Investments Commission (ASIC) is the financial regulator responsible for overseeing all trading activities in Australia. Another prominent regulator operating within the territory of the United Kingdom is the Financial Conduct Authority.

Pricing structure

Commodity brokers structure their fees differently, with some charging commissions and others profiting from the spread. Some companies have completely waived commissions, whereas others support both commission-free and commission-based accounts.

Leverage and margin

Leveraged trading of financial instruments such as commodities, forex, and indices is offered by different brokers. Depending on the jurisdictions they operate in, leverage is capped at certain ratios across the different asset classes. In the commodities market, the leverage limit for non-professional traders in the EU is set at 1:10 for commodities other than gold, as per ESMA’s regulations.

While leverage allows traders to trade larger financial positions with smaller capital, margin is the initial investment they need to make to open a leveraged position.

Trading platforms

MetaTrader4, MetaTrader5, cTrader, and TradingView are among the most popular trading platforms supported by the majority of commodity brokers. Apart from them, some brokerage companies offer proprietary platforms.

The supported deposit and withdrawal options, customer care, and educational resources are also among the features traders should pay more attention to.

Related Topics

FAQ

1. What items are considered a commodity?

There are several manners in which commodities are classified, and the most common way in which they are categorized is agriculture, metals, and energy. Agricultural commodities include cotton, sugar, cocoa, wheat, corn, rice, and others. Metal commodities include silver, copper, and gold, while energy commodities are natural gas and crude oil.

2. How can I start trading commodities?

Before they start trading commodities, traders should make sure that they have found a reliable and trustworthy broker. Thus, the account traders will create will play the role of an exchange place for trading the commodity they have picked. Before you dive into commodities trading, you should take your time to list your goals and gain a proper understanding of the intricacies of the specific market. Of course, traders should also pick the option for trading commodities that suits their risk appetite and their level of experience.

3. Should I trade commodities?

Most traders tend to turn to commodities when they want to ensure that the allotment of funds will be broadened. In this way, the chances of any unwanted risk will be reduced significantly, while traders’ portfolios will be far more balanced. When compared to other investment categories, commodities are far cheaper. Lastly, commodities are a hedge against inflation because during periods of high inflation, the market starts to flourish.

4. What drives commodity prices?

Supply and demand are the major factors that drive commodity prices. There will be an increase in the prices when the demand goes up, while prices will be pushed down when the supply is excessive. Supply and demand, in their turn, can be influenced by multiple factors, including the condition of the global economy, commodity substitution, the strength of the US dollar, and the growth in emerging markets like China, among others.

5. What are the risks of trading commodities?

It goes without saying that trading commodities does not go without any risks, which is the case with all other forms of investing and trading. First off, traders should be aware of the risk that is associated with the fluctuations in the price. In spite of the fact that the volatility of this market can create some good trading opportunities, traders should keep in mind that these changes in the prices might also be a risk factor. Leverage is one more thing to consider when trading commodities, and in spite of the fact that this tool can bring traders heftier gains, it can also bring in larger losses.