What Are Commodities?

Discover what commodities are, how they work, and why they matter in trading and investing.

What Are Commodities?

Commodities are essential raw materials and agricultural products—such as oil, gold, wheat, and coffee—that are actively traded in global financial markets. These assets form the foundation of the world economy and play a vital role in production, consumption, and trade.

At Ohio Markets, clients can trade commodity CFDs (Contracts for Difference), allowing them to speculate on price movements without owning the physical commodity. This provides flexible market access, the ability to trade both rising and falling prices, and exposure to global commodity markets from a single trading platform.

Historically, commodities have driven global trade and economic development for centuries. Today, they continue to serve a dual purpose—supporting industrial demand while also offering opportunities for trading and portfolio diversification.

Soft vs. Hard Commodities

Commodities are generally divided into two main categories:

Soft Commodities

Soft commodities are typically grown rather than mined and are often influenced by weather patterns and seasonal demand. Examples include:

Coffee
Cotton
Soybeans
Wheat

Hard Commodities

Hard commodities are naturally extracted resources, widely used in industrial production and energy markets. Examples include:

Crude Oil (Brent & WTI)
Gold
Natural Gas
Silver

Commodities vs. Other Financial Instruments

Instrument	Description	Tangibility	Volatility	Diversification Benefit	Example
Commodities	Raw materials traded globally	Physical	High	High	Trading crude oil during supply disruptions
Stocks	Ownership shares in companies	Intangible	Medium	Moderate	Trading Apple or Tesla shares
Forex	Currency exchange traded in pairs	Intangible	Medium–High	Moderate–High	Trading EUR/USD on interest rate news
Bonds	Government or corporate debt instruments	Intangible	Low–Medium	Moderate–High	Investing in government bonds

Benefits of Commodities Trading

Commodities offer several advantages that make them attractive to traders and investors:

Portfolio Diversification
Commodities often have a low correlation with stocks and bonds, helping reduce overall portfolio risk.
Hedge Against Inflation
Physical commodities frequently retain or increase value during inflationary periods.
Global Market Opportunities
Commodity prices react to geopolitical events, economic cycles, and supply-demand shifts, creating frequent trading opportunities.
High Liquidity and Market Access
Popular commodities like gold and oil trade in deep, liquid markets suitable for various trading styles.

How Commodity Prices Are Determined

Commodity prices are shaped by multiple interconnected global factors:

Supply and Demand

Scarcity, production levels, and consumption patterns are the primary drivers of price movement.

Geopolitical Events

Conflicts, sanctions, trade policies, and production agreements can disrupt supply chains and impact prices.

Weather and Seasonality

Critical for agricultural and energy commodities—events such as droughts, hurricanes, or cold winters can influence output and demand.

Economic Indicators

Global GDP growth, interest rates, and currency movements also affect commodity pricing.

Example: In 2020, coordinated oil production cuts by OPEC helped lift crude oil prices after a sharp demand collapse caused by the global pandemic.

Risks and Rewards of Commodity Trading

Commodity trading offers strong profit potential but also carries risks due to price volatility and global market influences.

Risk Management Tips:

Use stop-loss orders to help limit downside risk
Stay informed on global news affecting supply and demand
Diversify across multiple commodities and asset classes
Use leverage cautiously to manage exposure during volatile conditions

Explore More About Commodity Trading

How to Trade Commodities?

Explore a step-by-step guide on trading commodities, designed to help traders understand the basics and key considerations involved.

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Why Trade Commodities?

Learn about the factors that make commodities an important asset class and why traders consider them as part of a diversified trading strategy.

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Commodity Trading Strategies

Explore various strategies that are commonly used in the commodities market, including approaches for short-term trades, trend-following, and long-term portfolio management.

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