The United Kingdom’s economic progress is tied to investments that stimulate market growth and the strength of local industries and provide investors with profitable opportunities. As the year progresses towards the third quarter, investors will reevaluate their portfolios to adjust assets, especially in the financial markets. Learn why your portfolio may benefit from exposure to indices and commodities for stronger performance.
The UK Commodity and Indices Market
Commodities trading is one of the oldest financial markets, and it has become modernised thanks to digital technologies that allow traders to buy and sell assets online. Anyone over 18 can trade gold, oil, wheat, precious metals, etc., in the UK. There are different types of commodity and index investments, such as physical assets, futures contracts, exchange-traded funds (ETFs), tracker funds, and index funds.
The UK index market has the 100 largest companies listed on the London Stock Exchange, and new companies with growing valuations. The FTSE 100 is the primary UK stock market index, alongside the FTSE 250 Index, which tracks mid-cap companies and focuses more on domestic companies. These markets attract institutional investors, commercial traders, hedge funds, and exchanges, providing massive liquidity for retail traders who want to explore.
The UK’s commodities and indices markets are complex and dynamic and are among the largest in Europe. They account for a significant share of the global trading volume. The UK commodity market will reach $1.47 trillion in 2025, with a compound annual growth rate (CAGR) of 0.93% from 2025 to 2029.
Energy demand, renewable energy growth, food security, and economic uncertainty are some factors that will shape global financial markets in 2025 and 2026. Investors looking for a hedge against inflation and the sensitivity of currency exchange rates will find commodities an interesting choice for their portfolios.
How to Invest in Commodities and Indices
There are several ways to trade commodities and indices in the UK, each suited to different risk levels and investment goals.
Spread Betting
Spread betting is one of the UK’s most popular methods of trading commodities and indices due to its tax advantages. As of 2025, profits from spread betting are not taxed in the UK, unlike other investment income and capital gains. In addition, spread betting allows traders to track price changes without owning the underlying assets. For example, trades can profit from a 1% rise in gold without owning any gold, which could increase their overall portfolio.
Finding a reputable broker is the first step to profitable investment in financial markets. Ensure your broker offers spread betting in the UK and provides access to a wide range of commodities, including currency pairs, indices, bonds, metals, food, and energy commodities. Your broker should offer competitive spreads and retail margin rates that favour traders.
Contracts for Difference (CFDs)
CFDs let traders go long or short on commodities and indices, gaining exposure to market movements without physical ownership. Profits from CFDs may be subject to tax, and losses can exceed deposits due to leverage.
Funds or Individual stocks
Another route is to invest in individual stocks or funds related to commodities or indices. For example, mining, energy, or industrial firm shares may track commodity prices, while index funds allow broad exposure to market segments like the FTSE 100 or S&P 500.
Investors can also own these assets through Exchange-Traded Funds (ETFs). These are listed on stock exchanges and offer a simple way to track price performance over time. ETFs are suitable for those seeking diversified exposure with lower trading frequency. The 80/20 investment principle allocates 80% of your capital to lower-risk investments like index funds and 20% to growth-oriented assets. You can also use the 60/20/20 principle, which allocates your capital in that ratio to low-risk core investments, growth-oriented assets, and speculative investments, respectively. Remember that diversification and periodic review to rebalance performance will help your investment journey.
Why Investors Trade UK Commodities and Indices
Preserving your investment capital while making good returns is the goal of any investor. However, investors must select assets that reduce risk and maximise potential to achieve that. This is possible through a mix of high-risk-to-reward and low-risk-to-reward assets. Here’s why UK commodities and indices are popular with UK investors.
Reduced Risk and Diversification
Diversification and efficient risk management are two key characteristics of a robust portfolio. UK commodities and indices benefit from reducing risk by spreading investments across asset classes and industries. For example, the FTSE 100 allows investors to track the shares of companies in the insurance, telecom, mining, engineering, construction, investment, rental, and pharmaceutical industries.
Commodities and indices have low correlations with other assets like bonds and equities, which makes it possible for them to remain unchanged or even gain points during turbulent trends in the share or bond markets.
Hedge Against Inflation
Investors need portfolios that can withstand negative bearish trends without liquidation and maximise bullish trends for returns. Inflation is a persistent challenge in the UK, and household utility bills have reached high levels despite higher minimum wage and national insurance contributions. The UK’s stubborn inflation is pushing more people towards financial markets as they try to improve their incomes.
Commodities are raw materials, and prices usually rise when inflation increases. This provides a natural hedge that preserves investors’ financial value. For example, gold has traditionally delivered positive absolute returns over the years while the currency, bond, and share markets tumbled. During economic uncertainty, people turn to commodities, especially precious metals and food, to hedge against financial shocks and volatility.
Exposure to Global Economic Trends
UK investors can ride global economic trends by trading commodities and indices. The worldwide demand and supply for various assets, resources, and market sentiments influence commodity prices and expose investors to such global trends. An added benefit is that investors can find shifts in emerging markets, energy transitions, or technological advancements and take positions early. A good example is the crypto ETFs and indices approved in the United States and Europe; UK investors can buy and hold such assets for 3-5 years to potentially make significant returns.
Why Commodities and Indices Belong in Every UK Investor’s Toolkit
Commodities and indices are a foundation for building efficient portfolios because of their diversity and inflation-proof benefits. They offer more advantages for UK traders than traditional markets and are suitable for most investors, no matter their experience. Through thorough research, investors can find high-performance indices and inflation-proof commodities for the best returns
Article by Paul Anderson Oyelade.