Discover Commodities  •  Lesson 6 of 6
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Commodities are some of the most popular financial instruments, although they differ greatly from stocks, currencies and other asset classes. Review the most important elements of the commodities course to refresh your knowledge of commodities and commodities stocks, futures trading, macroeconomics and commodity trading strategies.


There are a vast number of commodities available to trade. Typically, commodities are split into groups:

  • Energy commodities
  • Agricultural (soft) commodities
  • Metal commodities

Energy commodities, such as oil and gas, make up approximately one-third of all commodity trades.

Metal commodities are typically divided into two categories: base and precious metals. The former, such as nickel and copper, are used in global production processes, while the latter, such as gold and silver, are primarily used as stores of wealth.

As the name suggests, agricultural commodities include crops and livestock that are produced for food or fuel.

Futures trading

There are a range of different ways to trade commodities, including as futures. Futures are legally binding contracts used to buy and sell an asset – or an amount of an asset – at a predetermined price on a specific date in the future.

Futures require an initial margin when purchased, although the transaction is only fully settled on the future date, known as the “maturity” or “delivery” date.

Futures help to facilitate trade between suppliers, corporations and governments by providing a degree of certainty regarding pricing and delivery. “Non-deliverable” futures are used by speculative investors trying to take advantage of a commodity’s price movements. The procedure is the same, but without the need to receive a physical delivery of the asset in question.

Commodity Stocks

Stocks are a type of security that represent a share of ownership in a company. Commodity stocks are the same, except that the companies in question are involved in the production, exploration or distribution of commodities.

As the price of a commodity rises or falls, related commodity stocks will often, but not always, move in tandem. As a result, commodity stocks can allow investors to gain exposure to the price movements of commodities, without directly owning the physical assets or investing in the commodity itself.

Macroeconomics and commodities

Macroeconomics involves studying high-level economic and political variables. This is particularly important for those looking to trade commodities, and there are some key macroeconomic factors that can impact the price of the commodities market:

Supply and demandThe supply of commodities is relatively inelastic, so it can take longer to react to macroeconomic changes.
Currency movementsMost commodities are priced in US dollars, and currency fluctuations can influence demand for commodities in non-US markets.
WeatherNatural disasters and severe weather conditions can impact the supply and demand of commodities, especially in the agricultural and energy sectors.
TechnologyTechnological upgrades can help to improve production processes or introduce new alternatives to existing commodities, such as renewable energy.
InflationMany investors choose to buy commodities as a hedge against inflation, although a recession might lead to a demand for goods made from commodities.
GeopoliticsGeopolitical factors might impact supply chains, investor sentiment and consumer confidence.

Commodities strategy

Historically, commodities have demonstrated both short-term price volatility and long-term price trends. As a result, there are a range of strategies available to individuals interested in trading commodities.

  • Trend-following strategy: involves trading trends, which are often long-term in nature
  • Spread trading strategy: involves simultaneously taking long and short positions on similar assets
  • Mean reversion strategy: involves selling short during price spikes or buying the dip during price crashes

Now that you have completed part one of the commodities course, have a go at the commodities quiz or get started on part two of the course, Invest in Commodities!

GREAT JOB!

Test yourself on what you have learned

Take a Quiz

QUESTION 1 OUT OF

Nickel, aluminium and copper belong to which category of metals?

Base metals
Precious metals

Correct!

Incorrect!

Why must the units of different agricultural commodities be uniform and interchangeable?

To differentiate them from metal and energy commodities
To increase the value of the commodity
To make international trade more efficient
All of the above

Correct!

Incorrect!

Are investors required to hold a future for the full term of the contract?

Yes
No

Correct!

Incorrect!

Which of the following are typically preferred by speculative investors?

Deliverable futures
Non-deliverable futures

Correct!

Incorrect!

What are commodity stocks?

Natural resources or agricultural products
A stock that is expected to grow in value faster than the market average
Shares of companies whose business revolves around commodities

Correct!

Incorrect!

It is possible to invest in commodity ETFs, true or false?

True
False

Correct!

Incorrect!

The supply of commodities is very elastic, true or false?

True
False

Correct!

Incorrect!

Most commodities are priced in which currency?

Euros
Great British pounds
Japanese yen
US dollars

Correct!

Incorrect!

Which of the following are all common risk management strategies?

Spreading risk, trading in small size and using leverage
Doing research, using leverage and spreading risk
Spreading risk, expanding your knowledge and trading in small size

Correct!

Incorrect!

Gold is often purchased by investors as a hedge against inflation and geopolitical risk, true or false?

True
False

Correct!

Incorrect!

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This communication is intended for information and educational purposes only and should not be considered investment advice or investment recommendation.