How to Invest in Commodities? [2025]

– Commodities are basic goods and essential raw materials like oil and gas used in global trade and industry.

– Investing in commodities offers a way to diversify your portfolios and hedge against inflation.

– To start investing in commodities, you can invest in physical commodities, CFDs, ETFs, mutual funds, futures, or stocks of companies involved with the production and management of commodities.

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What are commodities?

Commodities are basic goods or raw materials that are interchangeable with other goods of the same type and are used in commerce. They include:

Energy resources: Oil, natural gas;
Precious metals: Gold, silver, platinum;
Agricultural products: Coffee, wheat, cocoa, soybeans, cotton, sugar, corn;
Industrial metals: Copper, aluminum, palladium, zinc;
Livestock: Cattle.

Investing in commodities can hedge against inflation and provide exposure to global market trends, as their prices are primarily driven by supply and demand rather than stock market performance. However, commodity investments can be volatile and may not suit all investors.

What factors determine the price of a commodity?

Commodity prices fluctuate based on several factors, including:

Supply & demand dynamics: Scarcity or overproduction can drive prices up or down;
Geopolitical events: Trade policies, sanctions, and conflicts impact availability;
Weather conditions: Agriculture and livestock commodities are highly affected by climate;
Currency fluctuations: Since most commodities are priced in USD, exchange rate shifts can influence costs;
Economic cycles: During recessions, demand for commodities may decrease, while inflation can boost the value of certain commodities like gold.

How to invest in commodities: Step-by-step process

Here’s how to get started:

This setp-by-step guide will focus on commodity contracts for differences (CFDs), which allow investors to speculate on price movements without owning the underlying asset. Note that CFD trading is not available in the US.

Step 1: Select a Broker

To trade commodities, you’ll need an online broker that provides access to commodity markets.

Some key factors to consider when choosing a broker:

Regulation: Ensure the broker is authorized by authorities such as the SEC, FCA, or CySEC;
Fees & commissions: Look for low trading fees and make sure there are no hidden charges;
Trading tools & research: Choose a platform that offers market insights, technical analysis, and risk management tools.

We recommend eToro for commodity trading due to its user-friendly platform, diverse asset offerings, and comprehensive educational resources.

Best Commodities Broker for Intermediate Traders and Investors

Invest in 30+ commodities and 3,000+ other assets including stocks and cryptocurrencies.
0% commission on buying stocks – buy in bulk or just a fraction from as little as $10. Other fees apply. For more information, visit etoro.com/trading/fees.
Copy top-performing traders in real time, automatically.
eToro USA is registered with FINRA for securities trading.

30+ million
Users worldwide

Disclaimer: 51% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money. This content is not intended for US users. eToro USA LLC does not offer CFDs, only real Crypto assets, Stocks, and ETFs are available.

Step 2: Open and fund your account

Once you’ve chosen a broker, create an account and deposit funds using bank transfers, credit cards, or digital payment platforms.

Step 3: Place your trade

Navigate to your trading platform’s commodity section and choose the specific commodity CFD you wish to trade;
Enter the amount you wish to invest.
Set a buy order and specify your order type (stop-loss, limi, or market order);
Monitor price movements.

Other ways to invest in commodities

Besides CFDs, you can invest in commodities through:

Physical commodities: Buying gold, silver, or agricultural goods directly;
Commodity ETFs (exchange-traded funds): Funds tracking commodity prices without requiring physical ownership;
Futures contracts: Agreements to buy/sell commodities at a future date, often used for speculation;
Stocks of commodity companies: Investing in oil, mining, or agriculture companies;
Mutual funds and index funds: Professionally managed funds that include commodities.

Pros and cons of investing in commodities

Pros

Portfolio diversification: Commodities tend to perform opposite of stock and bond markets and can therefore be a creat way to diversify;
Inflation hedge: Precious metals like gold and silver hold value during inflationary periods;
Global market exposure: Investing in energy, agriculture, or metals allows participation in diverse industries.

Cons

Volatility: Commodity prices can fluctuate significantly due to economic and political factors.
No passive income: Unlike stocks or bonds, commodities do not generate dividends or interest.
Storage costs: Physical commodities like gold require secure storage solutions.

Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.

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