Commodity.com is a hub where anyone can learn about financial assets and how to trade. For those new to the art of market speculation, let’s define what commodities are.
A commodity is a resource, an asset with monetary value that may be sold or brought. For instance, the UK exports plenty of gold, petroleum, and platinum. These are all commodities.
There are several ways to trade commodities in the United Kingdom, both physically and online. Read on to find out what types of assets there are, and the platforms that offer them. Also see our in-depth guides to UK brokers & UK CFD trading.
Contents
What Is Commodity Trading?
Commodities are often defined as raw materials, though the term carries a broader meaning for brokers, buyers, and sellers alike. It has become a loose term.
A fair example is cryptocurrencies — these are digital assets with no physical form, though they’re considered a commodity. Processed resources and goods like refined gasoline or heating oil are just as much commodities as gold, silver, or unprocessed iron ore.
If a resource has monetary value and trades in an accessible market environment, it may be considered a commodity.
So, commodity trading is the act of buying and selling assets, resources, often raw materials, with monetary value. People may trade commodities over shorter or longer periods of time.
Day traders tend to do so online, frequently, and within shorter time frames. They avoid physical commitment to products and often speculate on daily price movements.
Institutional investors and some retail traders may hold positions for longer durations, depending on the market conditions of the asset at hand.
What Commodities Can You Trade In The UK?
With a plethora of commodities available to trade in the UK, they’re typically categorized in the following manner:
- Agricultural: Goods gathered and produced through farming methods. Live stock, grains, fruits, and various confectionary products are all examples of agricultural commodities.
- Metals: You’ll typically encounter metal commodities under a sole umbrella term, or split into two further categories — precious metals and common metals. Gold and silver are examples of precious metals, while copper is considered common due to its relative abundance.
- Energy: Any physical good that’s commercially used to generate power. Electricity in itself is a commodity, as is crude oil and natural gas.
- Cryptocurrency: While it’s up for debate, cryptocurrencies are often considered a commodity. However, these virtual assets have no physical counterpart.
- Environmental: What we may call non-tangible energy credits. The value of such credits rest on the demand for cleaner energy production.
Here are some of our most popular commodity guides in a nutshell:
Agricultural Commodities
A commodity group that’s been around for longer than all others. Farming is still responsible for a huge share of the commodity market, with agricultural assets like:
- Corn: As a key player in the global economy, corn is a popular food source for humans, as well as for livestock like feeder cattle, lean hogs, and live cattle. It’s a key component in ethanol fuel production.
- Coffee: A commodity with global popularity that’s farmed by a small monopoly of countries like Brazil, Vietnam, Colombia, Indonesia, and Ethiopia. Like tea in the United Kingdom, coffee has earned a status as a worldwide essential with continuous demand.
- Sugar: Used to sweeten food and beverages, as well as in ethanol production. The global sugar trade is a controversial one with several battles for ‘sugar power’ over the course of history. India, Thailand, China, the US, Pakistan, and Russia produce and export the highest volumes of sugar today.
- Soybeans: The vegan and vegetarian boom contributed to the rise of soybeans as a commodity with growing popularity. It’s used as an alternative to milk, flour, and even as livestock feed. The US, Brazil, and Argentina account for 80% of global soy production.
- Wheat: Grown for centuries all over the world, wheat is a direct value competitor to various other grains like oats, barley, and corn. Surging demand in developing countries is promising for the wheat trade.
Precious Metals & Common Metals
Both precious and common metals are typically listed under the ‘metal’ umbrella when you browse asset lists on trading apps. Still, let’s distinguish them.
Precious metals include:
- Gold: A popular store of value, often in times of monetary inflation. Mostly used in jewellery production. Today’s gold spot price is £2,167.32 per troy ounce.
- Silver: With a price of £0.80 per gram, silver is used in jewellery manufacturing and as a key ingredient in electricity conduction. Like gold, it’s a popular store of value, though secondary.
- Platinum: Huge demand in the automotive industry, as well as fashion and other industrial manufacturing. Platinum is rarer than gold with a price of £[ERROR, symbol not found: XPT/GBP] per troy ounce.
- Palladium: Somewhat of a rival to platinum in a range of use cases. Palladium’s price of £[ERROR, symbol not found: XPA/GBP] per troy ounce is largely driven by demand for products like catalytic converters, dental goods, and various other industrial uses.
Common metals include:
- Copper: Highly conductive and so widely used for electrical wiring, plumbing, and industrial machinery. Copper is mined worldwide, most notably in China, Peru, and Chile.
- Iron Ore: One of the rawest forms of metal commodities. At present, Australia has the largest iron ore reserves with over 45,000 metric tonnes.
- Steel: Arguably the most common metal used in building and transportational infrastructure construction due to it’s difficult-to-match durability for value.
Energy Commodities
Energy commodities encapsulate raw materials used to create energy, as well as measured units of circulating electricity:
- Crude Oil: Extracted by heavy machinery in oil fields and underwater oil mines, mostly around the North Sea region. The two main price indicators and oil blends you’ll encounter on commodity exchanges are Brent crude oil and West Texas Intermediate (WTI) crude oil.
- Natural Gas: Formed between solid rock and porous sedimentary rock formations over millions of years. Natural gas is a prime energy commodity and despite its relatively slow life-cycle, it is still a widely used fuel source worldwide.
- Ethanol: May be produced from several agricultural commodities, mostly grains as feedstock. Ethanol is used as an ingredient in gasoline mixtures.
- Electricity: Traded as an underlying commodity of financial derivatives. Electricity is an extremely broad term used to describe all harnessed power from other fuel sources,, including renewables.
What About Cryptocurrencies & Environmental Commodities?
Both cryptocurrencies and environmental commodities are non-physical speculative assets. They cannot be traded in physical form.
While environmental commodities are tied to energy credits and demand for increased renewable energy production, cryptocurrency assets lean on mass speculation and adoption.
Both digital assets belong under the loose ‘commodity’ term. With the rise of renewable energy production, we may see the environmental commodity landscape change in the near future.
More, the gradual negligence of cash payments may result in cryptocurrencies becoming forms of payment, rather than commodities.
Please Note: Availability subject to regulations. Cryptocurrency CFDs are not available to UK retail traders.
(How To) Learn Commodity Trading
The most effective way to learn commodity trading is to find a regulated trading platform and start practicing.
However, some theoretical homework on ways to trade, market behaviour, strategy, and data analysis can aid you in learning risk tolerance.
Ways To Trade Commodities In The UK
Most commodities are tangible — they can be brought, sold, and held in your hands. The ways to access these commodities are highly contradictory, however.
As you may see in the table below, most trading methods (financial derivatives) in the UK do not involve the physical handling of commodities. They provide an opportunity to speculate, merely bet on the direction and intensity of price movements.
Contracts-for-difference (CFDs) are popular in the UK. It’s important to note that cryptocurrency CFDs and all other crypto derivatives are banned for retail clients in the country.
| Trading Method | Ownership | Management Costs | Security Costs | Expiry Date | Mgmt Cost | Leverage |
|---|---|---|---|---|---|---|
| Bullion | ✅ | ✅ | ✅ | ❌ | ❌ | ❌ |
| CFDs | ❌ | ❌ | ❌ | ❌ | ❌ | ✅ |
| Futures | ❌ | ❌ | ❌ | ✅ | ❌ | ✅ |
| Options | ✅* | ❌ | ❌ | ✅ | ❌ | ✅ |
| ETFs/Mutual Funds | ✅ | ✅ | ✅ | ❌ | ✅ | ❌ |
| Shares | ✅ | ❌ | ❌ | ❌ | ❌ | ❌ |
While you may own a particular amount in ETFs, shares, and mutual funds related to one or several physical commodities, they’re still intangible financial products.
For example: owning shares of a mining company, or an ETF of mining companies will not expose you to the physical product, only the company’s performance that is mining the underlying commodity.
Ways to own a physical commodity is through exercised options or futures contracts, as well as precious metal bullions.
Bullion dealers mostly offer precious metal bars, ingots, and coins, that you can buy and own outright. Options and futures contracts allow you to exercise the right to buy a physical product, like a barrel of Brent crude oil.
However, physical ownership of a commodity often comes with transport and storage costs, something many retail investors cannot spare money and time for.
Please Note: Availability subject to regulations. Cryptocurrency CFDs are not available to UK retail traders.
Costs Of Commodity Trading In The UK
UK brokerages are not free to trade with. You incur certain fees in exchange for your right to use an online trading platform’s services.
The main way trading app make money is through spreads and commissions:
- Commission: charged in a variety of ways. Brokers may charge a set percentage or amount (£) each time you open and/or close a trade, or per round trade. Today, most brokers do not charge commissions. Instead, they make money via;
- Spreads: often shown as ‘pip’, meaning percentage in point. The spread, or pip, indicates the interest earned by the provider for facilitating the trade. A spreada represents the difference between the buy and sell price of a financial asset.
Several trading platforms in the United Kingdom charge the following fees, too:
- Deposit & Withdrawal Fee: based on which UK broker and funding method you use, you may be liable to deposit and/or withdrawal fees.
- Overnight Fee: charged when you hold a position overnight, out of daytime trading hours. This doesn’t apply to cryptocurrencies.
- Inactivity Fee: charged when your trading account remains unused for an extended period of time, defined in the trading app’s terms and conditions.
It’s important to understand the fees you’re obliged to pay a trading platform. Allow ample time to research any fees charged by your brokers of interest.
Commodity Market Cycles & Economic Insight
Economic cycles were once considered occult knowledge, but historical data is widely available for us to see how markets behave.
Markets move in smaller (micro) and larger (macro) cycles — you might have come across terms like ‘commodity supercycles’.
With the ongoing influence of a rapidly changing natural environment, a commodity’s supply dynamics shift hand-in-hand with commercial and consumer trends that drive demand.
We can even observe determinants of the life-cycle of commodity markets via present and historical sociopolitical and economic events. Other useful insights may come from national economic overviews, debt analysis, and technical analysis.
Technical Analysis
To comprehend a trading chart and the presented data about a commodity is to gain insight into an asset’s position in the market.
Technical analysis allows us to do just that. Over the years, many tools, indicators, and techniques were pioneered by professional and successful amateur traders alike.
For instance, a candlestick chart may be familiar to anyone who’s considered or shown interest in trading. Candlestick charts give insight into the highest and lowest price points of a particular time frame the asset of interest moved within.
Most technical indicators and charting tools take into account the price and volume of an asset. Such tools are available with UK brokers like Plus500.
On the other hand, brokers like eToro are far simpler and refrain from showcasing complex analytics tools.
Commodity Trading Strategies
Trading strategies are all about risk-tolerance — profitability is a consequence.
There is no single strategy to suit every marketgoer, but it’s vital for you to have one. Besides, strategies may vary based on what, and where you trade.
However, what all strategic foundations need are well-defined parameters to which you’re exposed while trading, namely:
- Finances: only put forth what you can afford to lose. Unless you’re a professional commodity trader with a proven track record of skillful profitability, don’t expect to withdraw more than what you deposit.
- Existing Knowledge: build on your existing knowledge and skillset. UK traders have access to a real breadth of commodities, so there’s a high likelihood that there are one, two, or more commodities you have an edge with nased on your prior life experience. Don’t ignore your interests either — if you have zero interest in grains or livestock, you’re better of trading metals or energy commodities.
- Research: study the markets you’re interested in. Dare think outside the box, study relevant industries to the commodities you’re watching, and build a research-backed picture of potential market cycles. Research is an ongoing part of commodity trading — many people research more than they actually trade.
- Technical Analysis: try a small handful of tools and see how they work for you. Start simple and dare make mistakes. Many trading platforms have demo accounts with a full plate of analytics tools.
- Record Keeping: it may help to become your own personal bookkeeper. You can keep a record of finances, trades, relevant data, and any information that aids your commodity trading to become more consistent.
- Know Your Limits: trading takes time to master. It’s like any other skill. Many commodities seem like relatively stable assets, though volatility can change rapidly.
Best UK Trading Apps & Platforms
The following brokers offer all commodity categories we’ve covered in this guide. Some of them have free trial accounts, allowing you to trade commodity derivatives, like CFDs, with practice money.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74%-89% of retail investor accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money.
Please Note: Availability subject to regulations. Cryptocurrency CFDs are not available to UK retail traders.
Further Reading
To learn more about commodities, see:
- Guide To Agricultural Commodities
- Guide To Precious Metals
- Guide To Energy Commodities
- Cryptocurrency Trading Guide
Ready to find a trading app? Check out this guide on How to Choose a UK Broker, alternatively, if you’d like to speculate on CFDs, refer to this Guide To CFD Brokers in the UK.
Additional useful resources on Commodity.com include:
- Our technical analysis guide with dozens of detailed tutorials
- National economic overviews, including commodity import and export data
- A collection of live national debt clocks
FAQs
Is commodity trading legal in the UK?
Yes, commodity trading is a legal practice in the UK. However, brokers without approval from the Financial Conduct Authority (FCA) may not practice in the UK. As a trader in the UK, it is your responsibility to ensure that you only transact commodities with brokers accessible from the UK.
Do day traders pay tax in the UK?
According to the UK government’s manual on capital gains taxes, traders in the United Kingdom may be subject to Capital Gains Tax (CGT) on profits gained from commodities trading. Such trading activity may include derivatives like contracts-for-difference (CFDs), futures, options, or physical transactions with products like precious metal bullions.
How much money do you need to start trading in the UK?
The sum which an FCA-regulated trading platform requires of you as a minimum deposit is an accurate estimation of how much money you need to start trading commodities in the UK. For example, Plus500, and AvaTrade both require a minimum first deposit of £100. City Index has no minimum deposit, while eToro pins a minimum requirement of £200 for your first deposit.
How do I trade commodities in the UK?
As a UK trader, you may trade commodities through futures exchanges, like the London Metal Exchange (LME). The LME offers futures contracts on metals like copper, aluminum, precious metals, and other common metals. You may also speculate on commodity prices through contracts-for-difference, mining company shares, and by trading with precious metal bullion dealers.
Where can I buy bullion in the UK?
There are many bullion dealers in the United Kingdom through whom you can buy and sell precious metal in-person or online. Two such dealers are BullionVault and GoldBrokers. Both dealers mostly trade gold and silver, though BullionVault offers platinum, too. Palladium may be available with other bullion dealers.
Are commodities high risk?
Commodities trading carries risk. In addition to standard market volatility, many commodities’ prices are impacted by external forces like the weather and the value of major currencies like Pound Sterling. Those partaking in leveraged commodity trading are exposed to an even greater risk of losing more money than initially expected. Never trade more than what you can afford to lose.
