Breaking News
Investing Pro 0
💎 Access the Market Tools Trusted by Thousands of Investors Get Started

Want to Invest in Commodities? Here’s What You Should Know


If you’re reading this post, it probably means you’re interested in, or at least curious about trading commodities, but you may not be sure how and where to start, or if it’s even the type of investment you want to make.

What are Commodities?

To decide if you should trade commodities, you should probably know what they are (if you don’t already know): A commodity is a raw material or agricultural product you can buy and sell, and any physical or virtual market that allows you to do that is considered a commodities market. There are three categories of commodities - Soft, Hard, and Energy.

  • Soft commodities are grown, such as coffee beans, lumber, meats, sugar, and so on.
  • Hard commodities are raw materials that are extracted through mining, such as gold, silver, palladium, etc.
  • Energy commodities refer to materials used to produce energy, such as oil, natural gas, ethanol, coal, and the likes.

In total, there are 100 primary commodities, half of which are considered major commodities.

How are commodities bought and sold?

While you can purchase the actual commodities and keep them, most of the commodities trade is done through commodities exchanges and futures contracts. Historically, the earliest known commodities market was in ancient Sumer, sometime between 4500-4000BCE. The contracts were written on clay tablets and represented the amount of each commodity (such as goats or quantity of wheat) that is promised to be delivered - not unlike futures contracts of today.

Commodity Trading - Pros

  • Diversification - When you look at historical data, you’ll find that there is low to negative correlation between commodities prices versus stock and bonds prices. This allows you to hedge against your stock investments.

  • Inflation Protection - While inflation drags bonds and stock prices down, commodities seem to benefit from it. This makes sense because inflation causes the prices of goods to rise, and the prices of commodities used to create these goods rise alongside them.

  • Exposure to Growth Opportunities - As demand for certain commodities rises over time, its price rises concurrently. For example, in the last 2 years, the price of Palladium Futures more than doubled, as it is vital in the production of certain car parts.

Commodity Trading - Cons

  • High Volatility - Commodities are considered to be some of the most volatile instruments to trade and are, on average, twice as volatile as stocks, and four times more volatile than bonds.

Important note - some analysts insist that another con is that commodities have no income generation, but as our analyst, Barani Krishnan states:

Non-income generation is something I'd argue against. The popular theory of commodities investing being a zero-sum game (i.e. someone has to lose for another to win), is too simplistic when viewed from a more diverse perspective. For instance, you can be a hedge fund that invests in niche plantations, participating not just in price discovery of the commodity you are growing but also earning income from the products you harvest and sell. The now-defunct Armajaro was one such hedge fund, is one of the largest proprietary investors/fund managers in cocoa/coffee during its time.

Got any other pros or cons? Let us know in the comments.

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your profile, will be public on and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
Sign up with Email