The Commodities You Can Trade on U.S. Exchanges

The Basics of Investing in Commodities

woman uses tablet to trade in U.S. commodity markets in high-rise building

Oscar Wong/Getty Images

The term "commodity" includes the raw materials that we eat, drink, and wear in our everyday lives, along with the raw materials that make other products we use. Commodities are usually Oats, hogs, cocoa, wool, coffee, and cotton are considered commodities, for example, as is the crude oil refined for gasoline, the fertilizer for crops, or copper used for wiring.

Fluctuations in political, economic, and weather issues cause the prices of commodities to move higher and lower. There are many opportunities to take advantage of volatility in commodities markets, but only a select number of these assets are available for direct investment.

There are roughly 30 different commodities that are available for trading on the U.S. commodity exchanges. Some commodities, like wheat, have been actively trading for more than 100 years, while some commodities disappeared from exchanges because they could not attract enough trading interest.

Major U.S. Commodity Futures Exchanges

These days, two major U.S. futures exchanges are found in the Chicago Mercantile Exchange (CME) Group and the Intercontinental Exchange (ICE).

The CME Group has been around the longest and is the result of a merger between the Chicago Mercantile Exchange and the Chicago Board of Trade. The CME acquired the New York Mercantile Exchange (NYMEX), the New York Commodities Exchange (COMEX), and many other smaller exchanges over recent years. The CME trades grains, livestock, lumber, metals, and energy markets.

The ICE Futures Exchange trades the energy, soft commodities markets, and other commodities, financial products, and equities as they own the New York Stock Exchange. The NYBOT lists futures contracts on North American energy, metals, sugar, coffee, cocoa, cotton, and frozen orange juice. ICE has many other interests outside the US.

Commodities Traded on U.S. Exchanges

The main commodities traded on U.S. exchanges include: Corn, soybeans, wheat, oats, rice, soybean oil, soybean meal, live cattle, feeder cattle, lean hogs, crude oil, heating oil, unleaded gas (RBOB), natural gas, ethanol, gold, silver, platinum, palladium, copper, cocoa, coffee, sugar, milk, cotton, orange juice, and lumber.

There are numerous other financial futures that trade on exchanges and there are still other miscellaneous commodities that trade with very low volume.

Many other commodities that trade on commodity exchanges around the world. Key exports of a particular country are likely to trade on that nation's commodity exchange, to hedge or lock in the price for future delivery. For example, the Tokyo Commodity Exchange offers the Azuki (red bean) commodity, which is a popular ingredient in Japanese food.

Investing in Commodities

It takes an intimate knowledge of a commodity, including where to buy it and where to sell in order to make it a viable investment. Here are a few ways to invest in commodities:

Physical trading: The costs of physical trading can be extremely high and not easily available to the everyday investor, as physical commodities typically have to be bought in bulk at the wholesale level, as well as stored.

Futures: A futures contract is a requirement to buy or sell oil at a certain price on a future date. Commodity futures allow an investor or trader to take long and short positions by posting a small amount of futures margin to control a large amount of a commodity.

Options: An option gives you the right (but not an obligation) to sell or buy a commodity on a specific date at an agreed-upon price. Options are considered a more conservative approach by some, and allow you to bet against and on a commodity.

ETFs or ETNs: These are commodity-based instruments that attempt to replicate the price action in commodities, and can be bought and sold like regular stocks. ETFs are exchange-traded investment funds, while ETNs are debt-driven securities. Common commodity-focused ETFs and ETNs include agricultural, energy, precious metal, and industrial metal categories.

Individual stocks: You could also buy shares in a company currently mining, harvesting, or otherwise producing a commodity, such as an oil company or grain producer. The direct risk isn't simply in the commodity, but the company's production and management, as well. The price may or may not be well correlated with the price action in the commodity it represents.

The Bottom Line

Commodities are usually physical assets that make up a complex and volatile investment category, often influenced by economic conditions, political instability, storms and other weather-related events, and import and export policies. Investing should be undertaken carefully after you understand potential risks and strategies. After doing so, there are several ways of getting involved in commodities.

The Balance does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal.