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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: November 17, 2024

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. FP Markets
    Rating: 4.8
    73.85% of retail investor accounts lose money
  3. Pepperstone
    Rating: 4.7
    75.5% of retail investor accounts lose money
  4. Global Prime
    Rating: 4.4
    74-89% of retail CFD accounts lose money
  5. eToro
    Rating: 4.2
    51% of retail investor 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 life and power the world economy. Because of their constantly-changing prizes, 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 play 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 EFTs 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 CFDs – 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 BrokersThese days, there is a massive variety of commodity trading brokers, and this might make it a stretch for traders to tell the worthwhile platform apart from the rest of the brokers. In the first place, traders can judge the quality of the broker from the variety of commodities the company has added to its portfolio. Additionally, traders should make sure that they are dealing with an authorized company that adheres to all operational guidelines and is exceptionally strict when it comes to the protection of its users. The pricing, available platform, the accepted funding and withdrawal methods, as well as the quality of customer care are also among the features traders should pay more attention to.

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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.