Learn about commodities with these answers to some frequently asked questions on trading Commodity CFDs. For further information, please refer to our Commodity CFD contract details.
What are commodities?
There are several different kinds of commodities, the most popular being energies, metals, and agricultural. Commodities are traded in standardised contracts, with one contract defined as a certain weight or volume (or other agreed measurement) of that particular commodity. Commodity CFDs let you profit from the changes in price of those contracts. You can either trade what the commodity is currently worth (the spot price) or its value at some set point in the future.
How are commodities traded?
Most commodities are traded on exchanges as standardised futures contracts. The value on which you are trading is that of a commodities contract at a set point in the future, taking into account the cost of holding/carrying the physical assets until the expiry date. For example, the value of a July cotton future contract is based upon the current price of cotton and the cost of holding it until July.
What are the most popular commodities?
For investors who trade commodities, the most popular are:
- Oil (eg US Light Crude, UK Brent Crude) and its derivatives
- Metals like gold, silver and platinum
- Soft goods, like wheat, coffee and sugar
IG offers a wide range of commodities at zero commission and with tight spreads. Using Commodity CFDs you can take a position on the future price of a commodity at a fraction of the cost of the underlying futures contract. You can also trade the daily spot price as a CFD.
How does Commodity CFD trading work?
The majority of our commodities markets are based on underlying futures contracts. We also offer daily spot trades on the popular Gold and Silver commodities. Trading commodities works in a similar way to our other markets, in that we offer a buy/sell spread based on the price of the underlying market.
If you expect the price of a commodity to rise, you open a position by buying a contract at the offer price. To close the trade, you sell at the bid price. You do the opposite when you believe prices will fall, that is, open by selling a CFD at the bid, and closing at the higher (offer) price.
The difference between your opening and closing prices, multiplied by the value of each contract and the number of contracts you have traded is your profit/loss. Note when trading CFDs, all trades are settled in cash, there is no option to physically deliver the good. You are trading on the change of contract prices and not on the underlying commodities themselves.
View our commodity CFD trading examples to see how these can work in practice.
Why trade Commodity CFDs with IG?
There are a number of advantages to trading Commodity CFDs with IG.
- Access to a wide range of commodities markets, including energies, metals and agricultural commodities
- Exclusive SGD-denominated CFD Contracts, which let you trade international commodities like gold and oil in Singapore dollars, and eliminate your currency exposure
- Competitive trading spreads with no commission to pay
- Access to third-party and in-house research, to help support your commodities trading
- Real-time charting and Autochartist as part of a comprehensive technical analysis package
Learn about commodities and trading CFDs with our seminars.
CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial investment, so please ensure that you fully understand the risks involved.