Commodities

The basics, the advantages and the risks.

What are commodities?

Commodities are raw goods such as oil, gold and agricultural products.

They come in groups: energy such as crude oil, metals such as gold and silver, and farm products such as wheat and coffee.

A commodity futures contract is an agreement to buy or sell a particular commodity at a future date. The price and the amount of the commodity are fixed at the time of the agreement.

How do commodity futures work?

Farmers protect their price
A wheat farmer can lose money if the price of wheat falls before the harvest. By selling wheat futures, the farmer fixes a price in advance.
Buyers protect theirs
Buyers such as millers, who grind wheat into flour, use futures to know what they will pay. This is called hedging.
Exchanges set the terms
Futures trade on exchanges that set the same terms for everyone: how much, what quality, and when and where it is delivered.
A clearing house in the middle
A clearing house acts as the buyer to every seller and the seller to every buyer.
Gains and losses every day
Each day, every position is valued at the market price. Gains are added to the trader’s margin account, and losses are taken from it.

A field of ripe golden wheat in warm sunlight

What do the key words mean?

Spot price: The price of a commodity for delivery now, at a given time and place.
Contract size: The amount of a commodity in one contract, set by the exchange.
Long and short: Going long means buying a futures contract. Going short means selling one.
Margin: Money deposited to cover a futures position. It is not a down payment: it makes sure traders can meet their obligations.
Leverage: Controlling a large amount of a commodity with a small amount of money.
Delivery: Handing over the actual commodity, or its cash value, to settle a contract.

What moves commodity prices?

Commodity prices move with supply and demand: how much is produced, and how much is wanted.

Weather matters too. In an example from the US CFTC, ideal weather brings a very large wheat harvest, and the price of wheat falls.

What drives crude oil prices

The US Energy Information Administration’s seven key factors.

Spot prices
Supply from OPEC countries
Supply from non-OPEC countries
The supply demand balance: inventories
Demand in OECD countries
Demand in non-OECD countries
Financial markets

Source: US EIA, read 31 October 2026.

In the EIA’s list, OPEC is the Organization of the Petroleum Exporting Countries. It sets limits on how much oil each member country can produce, and oil prices have historically tended to rise when it lowers them.

The OECD includes the United States, most of Europe and other developed countries.

What are the advantages?

Most participants are hedgers, who trade futures to reduce the risk of financial losses from price changes. Others are speculators, who attempt to profit from price changes in futures contracts.

Most futures contracts, by volume, are closed with an offsetting trade and do not result in delivery.

Because every contract has the same terms, many people can trade the same contract. That makes buying and selling easier.

An oil pump jack silhouetted against a golden sunset

What are the risks?

Trading commodity futures and options is a volatile, complex and risky venture that is rarely suitable for individual investors.
US CFTC
Many individuals lose all of their money, and can be required to pay more than they invested initially.
US CFTC

Margin against the contract’s value

The contract’s total value

Margin: typically between two and 10 percent

At a 2 percent margin, a 2 percent price move against you equals your whole margin.

Source: US CFTC, undated page, read 31 October 2026. The 2 percent move is arithmetic.

How can ETTFOS help?

Successful traders follow a proven system.

One framework, taught since 1997.

A disciplined, rules-based approach to trading, with risk management at the heart of every decision.
Clear rules for entries, exits and risk.
Entry, target and stop, decided before the trade.

The strategies apply to every time frame, from day trading to the long term, without frantic buying and selling.

ETTFOS courses cover the markets in different depth.

Taught live online or in person, in small, interactive groups.

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ETTFOS is not an investment advisory service or a broker-dealer, and it does not tell anyone what to buy or sell.

Commodities

What are commodities?

How do commodity futures work?

Farmers protect their price

Buyers protect theirs

Exchanges set the terms

A clearing house in the middle

Gains and losses every day