If you are willing to invest in commodities but have no to zero knowledge of this sector then this guide will be very helpful as it will provide you with all the information that you need to know when investing in commodities from what is it to what are the ways of investing in Commodities to the best trading platforms that give you access to your desired commodities. At present, commodities are outperforming other asset classes. However, before you move further, let’s first discuss the best trading platforms where you can invest Commodities.
Best Trading Platforms for investing in Commodities
Now that you have gained all the knowledge of what commodities are and what are the ways to invest in them, you must now know about the best trading platforms that give you access to your desired asset in commodities. At present, there are a variety of trading platforms available that give you access to your desired asset class, but not all the Platforms that give you access to your favourite trading platform are reliable, there are a variety of key metrics that makes a platform reliable. However, going through all these metrics in all the available trading platforms in the market can be very time consuming and tiresome. That’s why to save you your time and energy below we have listed down the very best trading platforms that you can trust blindly.
eToro- Overall best Trading Platform
When looking for trading Commodities, eToro is the best consideration. Along with Commodities, this trading platform gives you access to a variety of trading instruments including stocks, cryptocurrencies, forex and many more. Hence, this platform is a great choice for those who are looking to have a well-diversified trading portfolio. Unlike other trading platforms, eToro gives you access to a wide range of commodities that is at least seven metals, two energy products, and six soft commodities.
In the case of commodities, either the instruments are CFDs on the underlying commodity or the price of the commodity futures contracts. Furthermore, if you are looking to buy shares in commodity-producing companies then also eToro is a great choice as it allows you to get access to top-rated commodity-producing companies. It also offers several ETFs that hold physical commodities and mining shares.
The platform is regulated by the FCA, ASIC and CySEC and is also accessible to the US traders as it is registered with the FINRA. This is a commission-free trading platform, except you will be required to pay a 0.5% fee on all your deposits and $5 on every withdrawal. The platform is the cheapest trading platform in the UK.
For beginners, eToro provides the copy trading feature. This feature allows you to copy ongoing trades of expert traders. You can also use the copy portfolio feature, which allows you to diversify your investment portfolio. Unlike other platforms, account creation on this platform is not time-consuming. It takes only a few minutes to create an account on eToro.
Once you are done with creating an account you are then required to fund it to start your trading journey. For the convenience of its user’s, it accepts various payment methods for making a deposit such as Debit/Credit Card, Bank account, e-wallet e.t.c. The fee attached to the platform is an inactivity fee of $5, which is understandable and also the spreads are relatively low. The platform also offers a mobile application for the convenience of its customers. This trading platform also offers 24/7 available customer support which other free platforms don’t offer.
- Regulated by FCA, ASIC and CySEC
- Copy-trading and CopyPortfolio feature
- Offers a variety of financial assets
- Accepts debit/credit, bank account, e-wallet
- Fractional trading
- Offers 800+ shares
- Not suitable for advanced learners
Capital.Com- Best Commodity CFD Trading Platform
Another best consideration for trading Commodities is Capital.Com. This trading platform is well suited for novice traders as it allows traders to get started with a minimum deposit of $20. Furthermore, the platform is compatible with all devices such as mobiles, PCs and so on. This trading platform also offers a demo account feature so that its traders can have a seamless trading experience.
This trading app is regulated by the FCA and CySEC and accepts payments from a variety of modes that are debit/credit cards, e-wallets, and bank transfers. It also offers a variety of trading assets including indices, hard metals, cryptocurrencies, energies, ETFs and even DeFi coins so that you can have a well-diversified trading portfolio.
In terms of Commodities, unlike other similar trading platforms, Capital.com offers one of the widest ranges of energy, metal, and soft Commodity products. Furthermore, it allows you to trade 2700 stocks listed globally, including stocks of commodity producers commission-free. The only thing that you should consider while choosing this trading platform is spreads as on this platform spreads are highly competitive on major blue-chip stocks. As the platform is a well known CFD trading platform, that means it allows you to apply leverage and as well as short selling.
- Regulated platform
- 0% Commission
- Offers a variety of trading assets
- Spread betting for UK clients
- Beginners friendly
- Offers minimum deposit of just $20
- CFD only
- Not suitable for advanced traders
IG – Trusted UK Broker
Another amazing platform we have on our list is IG. This trading platform was launched in 1974 and since then it is known as the most popular trading platform for CFD trading. This platform owns the North American Derivatives Exchanges (NADEX) and the DailyFX.com financial news and analytics website as well as it offers a variety of trading assets to diversify your trading platform.
In terms of Commodities, this trading platform gives you access to a wide range of variety to select from via CFDs or Spread betting. And, the best part is that you can trade commission-free on this trading platform, it doesn’t matter which avenue you opt for.
Hence, the platform is an ideal choice for targeting small margins. Furthermore, the spread betting option is highly attractive as all of your trading profits are tax-free in the UK. The platform is highly secured as it is regulated by FCA, which means you don’t have to worry about the safety and security of your funds.
As we have already discussed, the platform offers a variety of assets to diversify your trading portfolio including cryptocurrencies, forex trading and many more. In the case of forex, it gives you access to over 12,000 assets and allows you to apply the leverage of up to 1:200 on forex pairs like EUR/USD, EUR/GBP, EUR/GBP, EUR/JPY, and USD/JPY. That means with an account balance of just $300, you could potentially trade with $60,000. What attracts the traders most to this platform is that it gives access to over 80 currency pairs.
This trading platform is highly compatible with the full range of MetaTrader4. The account creation on this trading platform is also super easy. However, you do need to pay an entry-level fee of £8. But the good thing is that if you trade regularly then this entry-level fee will be reduced to £3. Once created an account you will be required to make a minimum deposit of $250 on this platform to initiate trading. This minimum deposit isn’t the fee of this platform but the working capital that is needed by the investors to start investing journey.
- Well reputed UK Broker
- Offers more than 12,000 traditional assets
- Offers leverage and short selling
- Offers spread betting and CFD products
- Offers educational tools
- Offers more than 80 pairs
- MT4 is supported
- Do not offer ETFs or Stocks
What are commodities?
Commodities are assets ranging from wheat to gold to oil. In 1936, commodities were defined by the U.S government in the Commodity Exchange Act. This act allowed trading in agriculture and natural resources commodities. The goal of trading in commodities is the same as trading in other sectors, that is to make a profit from rising and falling prices.
Types of commodities
There are three types of commodities namely Energy Commodities, Hard Commodities and Soft commodities.
These Commodities include natural gases, crude oil and other topics of oils and coal.
These types of commodities include precious metals that need to be mined that are gold, copper and many others.
Agriculture or Soft Commodities
These types of commodities are those which are grown, that is crops like corn, cotton, timber and livestock.
What are the best commodities to invest in?
The more liquid a commodity asset is, the better it is. Below we are listing down the best commodities that you should consider investing in.
Gold – most liquid commodity
Gold is a highly valued metal that has been considered the safest investment. Traditionally, the only way to invest in this luxurious yet scarce metal was to purchase it in its tangible form. However, that is not the case anymore. Now with the changes in time rather than buying jewellery or coins, you can simply take ownership of the underlying assets through an online Broker. The easiest and the safest way to make a long term investment in gold would be to purchase an ETF.
SPDR Gold ETF is known to be the largest exchange-traded fund globally to be backed by gold. By doing so, you don’t have to worry about buying or storing it, as it is completely taken care of by the provider itself. The major benefit of investing in gold by choosing an ETF is that you can exit your position at any given time during standard market hours. The other major benefit is that the cash will be added to your brokerage account instantly the minute you decide to sell your SPDR Gold.
Gold as a long term investment is favourable among UK investors as it is used to hedge against falling markets and to mitigate the risk when the markets are somewhat bearish.
Oil- Lifeblood of the Global Economy
Oil along with Gold is the single most important commodity in this world. It is often called the lifeblood of the global economy even in a time when renewable energy is being adopted. Oil has fueled the global economy for the last 150 years and is likely to remain important for years to come. Oil investment is an attractive sector for both day traders and long term investors. Oil being highly volatile is mainly reserved for experienced investors. However, oil was the single most commodity that got highly affected during the corona pandemic in 2020. Well, it does make sense as the whole world was under lock-down.
Soft Commodities- Best commodities
Soft Commodities are commodities that include agricultural and livestock products. As soft commodities are highly affected by a wide range of forces that determine supply and demand, prices for soft Commodities fluctuate dramatically. The most popular soft commodities are grains, corn, wheat and soybeans.
Ways to Invest in Commodities
At present, there are a variety of ways in which you can invest in Commodities. And, unlike traditional ways, today to invest in Commodities you don’t require to own the asset physically. That means you can choose any instrument which meets your financial goals the best. Below listed are the most famous and approachable ways to invest in commodities.
CFDs- Most effective way to invest in Commodities
Without any doubt, the most convenient yet effective way of investing in Commodities is CFD (Contract for Difference). Trading CFDs simply means that you are agreeing to exchange the difference in the value of an asset from the very point to which the contract is open to when it’s closed.
CFDs trading allows you to speculate on the price movements on financial markets without owning any underlying assets. That means, if you are looking to trade commodities, let’s say gold via CFDs, you are not required to own it physically. For example, there is a buyer who predicted a rise in the value of the gold, and there is a seller who predicted a fall in the value of the gold.
And, if the price rises are per the buyer’s prediction, traders will close their CFD position and settle the contract on the basis of the price difference in the profit. In CFD, the underlying asset is never owned by the trader, you can buy a share of that particular asset that is owned by a company or an organization that’s why CFDs are called derivatives.
Another effective way to invest in Commodities is via an ETF ( Exchange Traded Funds) and for those who don’t know, then the best commodity ETFs allow you to invest in a group of assets through a single trade only. When considering commodities trading via an ETF let’s say gold in this case then you can invest directly in its future value and that’s the same for other assets also.
In this method, the ETF provider buys and stores the asset on your behalf and the value of your assets rise and fall according to the market of the underlying asset. This method of investing in commodities is highly suitable for those who are looking to make a long term investment in commodities. Furthermore, ETF investment is suitable for various investments as its expense ratio is far less than that of mutual funds. Hence, it offers low costs. Apart from low cost, the ETF also offers increased transparency and instant liquidity.
Well, this method of investing in commodities is a little complex as it allows you to trade the future price of your desired asset. Future Trading consists of the trading of Futures contracts. A futures contract is an agreement between the buyer and seller of the contract. This agreement says that the assets such as commodities, in this case, will be bought/sold for a specific price, on a specific day in the future.
Futures trading is the complete opposite of traditional Trading. All you need to do in futures trading is to predict whether the price of an asset will rise or fall on or before the expiry date of futures contracts. Futures trading is highly suitable for large scale financial institutions. In terms of making a profit, all you need is to predict whether the futures will expire at a higher or lower price than the contract price.
For example, the price of 6 months future contracts on oil might be $360 per barrel. If you enter the position and the oil contract closes at $390 per barrel, then you will make money. But, if the contract closes at $350 per barrel you will lose money.
Futures contracts can be traded with leverage, which means future contracts enable you to trade for much more value than you have actually deposited. Simply put, if you want to trade on increased market exposure but cannot afford it, you can simply deposit a small percentage of the amount, known as margin and the rest of the amount can be borrowed from your chosen trading platform. However, one thing to be sure of is that profits or losses are determined by the total position and not by the small percentage that you used to open it. It means that there is a great risk of incurring a loss of more than you have invested in.
Another method of investing in commodities is Options Trading. Much like Futures Trading, Options trading is also a bit complex. An option is a contract that allows an investor to buy or sell. Options are a form of financial trading that allows traders to access their chosen asset class in a low-risk manner. There are no requirements to purchase the underlying asset in full unlike traditional financial products such as stocks, Uk bonds or ETF trading. All you need to get access to the options trading market is to pay a small percentage of the asset, known as a premium.
All you are required to do in options trading is to determine whether you think the asset will rise or fall in value before the options contracts expire. The major difference between Futures Trading and Options Trading is that, unlike Futures Trading, this method does not give you a legal remit to buy or sell the underlying asset, and in this case commodity.
That means if your trade is unsuccessful you lose the premium but even if your trade is successful you again lose the premium because in this case, you have to subtract the premium from your profits. The premium varies from asset to asset as it depends on various factors including, asset class, length of the contract, the broker behind the contract, the strike price. However, it will always be priced between 5-10 per cent of the total contract price.
Best Strategies for Commodities Investment
Below we have listed a few popular strategies to invest in commodities :
This is the easiest and convenient strategy for investing in any type of asset for the long term. In this strategy, all you are required to do is to decide on which Commodities you want to invest in and then either on a monthly basis or quarterly invest the same amount in those commodities. The advantage of this strategy is that prices average out over time and you don’t have to worry about adjusting your time to the market.
Another strategy for investing in commodities is Trend Following. In this strategy, traders hold long positions only when there is a clear bullish trend in place. Anyhow, few traders do hold short positions also when prices are in a downtrend. That’s why you are advised to use moving averages or trendlines to identify trends.
Commodity Index investing
Another amazing strategy that we recommend you for investing in commodities is Commodity Index investing, this strategy is approachable with ETFs only. The ipath Bloomberg commodity index ETN is an index of 23 commodity prices. Risk in this strategy is spread across the entire commodity market as components of the index are capped at 15% each. However, while approaching this strategy you are required to have a keen knowledge.
How to invest in commodities through a trading platform?
There are a variety of trading platforms that give you access to a wide range of commodities. But, here we are taking eToro as an example to make you understand the whole process of investing in commodities through a trading platform. However, you are free to choose the trading platform of your choice as the investing process is almost the same on every platform
Step 1: Create an Account
The very first step to investing in commodities on eToro is to create an account on the official website of eToro. To do so you are required to fill in a registration form by entering in your basic details such as your name, phone number, e-mail address, and setting a strong password. After entering all of your details make sure to accept terms and conditions.
eToro will ask you to verify your identity by uploading some of your documents, don’t worry as your documents are truly safe on this platform. However, you don’t need to undergo verification until you deposit more than $2,250 or you request a withdrawal.
Step2: Fund your Trading Account
Now that you have successfully registered on this platform you are now all set to fund your account by making a minimum deposit of £160. This funding amount isn’t the fee of the robot but the working capital that is needed by the traders to execute trades. eToro offers several payment methods for the convenience of its traders, you can choose whatever method you feel more comfortable with. The payment methods supported by eToro are Debit/Credit Card, PayPal, Skrill, Nettler, and Bank Transfer.
Step 3: Make your Selection
Now that you have successfully registered and funded your trading account, you are now all set to invest in Commodities of your choice. If you already know which commodity you want to invest in then that’s great and if you don’t know then go to the search bar at the top of the home page. Once reached the search bar then click on the ‘Trade Markets’ on the menu and then click on ‘commodities’ at the top of the page. Once clicked, a list of commodities will appear, from which you can make a selection. Furthermore, to keep an eye on all the commodities you can set up a watchlist.
Step 4: Place your order
Now that you have made up your mind on which commodity you want to trade you are now required to place your order. However, there are two ways in which you can buy or sell commodities. The one way you can do so is trading at the current market rate and the other way is to enter an order with a limited price.
Furthermore, on this platform, you can also specify either you want to apply a cash amount or the number of units. You also have the privilege to apply Leverage and you can also set a stop loss or take profit level for your trade using the order form. However, keep in mind the maximum exposure for commodities you get on this platform is $1000.
That means if you aren’t applying leverage, this will require a margin of $1,000, or as low as $100 if you are using the maximum leverage of 10X. Once you are done with entering your order, you can then set a stop loss and take-profit order. This will help you mitigate the risk involved in the trade and will make sure to exit when the price reaches the desired level. Take profit and stop-loss levels are either based on the price levels or on the maximum amount you are capable of losing or the profit you are happy to exit with.
I hope you got all the information you were looking for in this guide. Right now is the best time to invest in Commodities as the global economic recovery is starting to take shape. This sector for a decade has enjoyed a bull market, and now it seems that commodities will provide handsome returns over the next decade or longer.
If you have made up your mind on investing in commodities then the very best way to do it is through CFDs in our opinion as it is the easiest yet effective way in the market. eToro allows you to invest in your desired commodities via CFDs.
- What are Commodities?
Commodities are assets ranging from wheat to gold to oil. There are three types of commodities namely Energy Commodities, Hard Commodities and Soft commodities.
- Which is the best trading platform for Commodities?
All the above-listed trading platforms are the best of all however, if we have to choose one then eToro is our best recommendation. The platform is regulated by the FCA that means the platform is highly secured.
- How do you buy and own a commodity in the UK?
If you are a retail client and willing to trade in a commodity like gold or oil, then it will be very difficult. The easiest way to achieve this goal is to invest in an ETF.