Metals, fossil fuels and grains– commodities in everyday use can also be in your portfolio. Learn about different commodities, their risks and strategies to invest in them.

Frequently Asked Questions

  • How do I invest in commodities?

    There are many options – buy physical commodities like bullion, invest in a commodity ETF or mutual fund, buy stocks of companies that produce commodities, buy ETFs or funds investing in commodity producers or invest in commodity derivatives. You need a brokerage account to trade in stocks, mutual funds or ETFs, and derivatives. Brokers may have minimum capital requirements for commodity futures trading.

  • How does fiat money differ from gold and silver?

    Fiat money is currency that is legal tender not backed by any physical commodity like gold. The earliest U.S. currency was pegged to gold and silver while the first fiat came during the Civil War. The gold standard came back in 1879 but was abandoned after the Great Depression in 1933. The gold standard was followed by the Bretton Woods system which eventually collapsed and gold convertibility of U.S. dollars ended in 1971.

  • Which commodities can be traded?

    You can typically classify commodities traded in the U.S. in three broad categories – agricultural, energy and metals. Agricultural commodities include corn, soybeans, lean hogs etc. Trading energy commodities includes instruments based on or investing in crude and natural gas products. You can trade metals such as gold, silver, platinum and copper among others as well.

  • What is a commodities broker?

    A commodity broker places commodity trades for their clients. It can also refer to a brokerage firm that handles commodity trades. For registration purposes, brokerage firms are designated as introducing brokers (IB) or futures commission merchants (FCM). Individuals are designated as associated persons (AP).

  • How do I trade commodities online?

    To start trading commodities online, you’ll first need to set up a brokerage account. The next step would be to fund this account. Then decide what type of investment you’re making – commodity ETFs or derivatives. You’d need special approval from your brokerage to trade in commodity futures. Enter your trade size and place the order. Once the order is placed, monitor your bet and manage risks. 

  • How do I invest in water?

    Water is an essential commodity but with climate change there are increasing risks or floods and droughts. You can invest in water by purchasing stocks of water utility or water treatment companies such as American States Water Co. or Essential Utilities Inc. You could also invest in water ETFs such as Invesco Water Resources ETF (PHO). Water scarcity in California has also led to creation of Nasdaq Veles California Water Index futures.

  • How do I buy crude oil?

    You can’t really buy physical barrels of crude oil. You could, however, invest in stocks or debt of oil producers such as ExxonMobil or Chevron. You could also purchase mutual funds investing in the oil sector. Crude oil ETFs or ETNs can offer regular or leveraged exposure to the commodity. You could also trade crude oil futures, if you understand the market and have the risk appetite to do so.

Key Terms

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Gold Standard
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Your Guide To Investing in Silver
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Buying a Put Option
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Want to Become a Commodity Broker?
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Learn About Investing in Lean Hogs Futures and Commodities
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How the Chicago Mercantile Exchange Works
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Taking Delivery of Commodities via the Futures Market
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Why You Should Rethink Investing in Commodities
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Using Commodity Brokers and Commission Rates for Traders
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Why Is Liquidity So Important in Commodities?
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Hedging and How it Works in the Commodity Market
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These Metrics Give Clues on Commodity Price Action
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Starting Your Own Brokerage Firm
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Impact of the Dollar on Commodities Prices
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Understanding Fundamental Analysis of Trading Commodities
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How Hedging Futures Is Used to Control Commodity Prices
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Learn the Difference Between Bull and Bear Spreads in Commodities
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Choosing a Firm and Applying for Commodities Trading Accounts
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Learn About the Risks, Rewards, and Volatility of Commodities
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Some Tips for Selling Options on Futures and Commodities
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The Price of Crude Oil and Equity Prices
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Learn About Trading Commodities For a Living and What It Takes
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Why It's Necessary to Create a Trading Plan for Your Commodities
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Guidelines for Using Commodities in Your Investment Portfolio
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Peek Inside the Career of a Commodity Broker
 
 
 
 

Page Sources

  1. Congressional Research Service. "Brief History of the Gold Standard in the United States," Pages 2-3, 5-6, 11, 13. 

  2. National Futures Association. "Associated Person (AP) Registration."

  3. Commodity Futures Trading Commission. "Basics of Futures Trading."

  4. CME Group. "Nasdaq Veles California Water Index Futures."

  5. Investor.gov. "Futures Contract."