What is a commodity?
In one line: A commodity is a basic raw material, like oil, gold, copper or wheat, where one unit of a set quality is the same as any other.
The main groups
- Energy: crude oil, natural gas, gasoline, heating oil
- Metals: gold, silver, copper, platinum
- Farm goods: corn, wheat, soybeans, coffee, sugar, cattle
What makes something a commodity is that it's interchangeable. A barrel of one grade of oil is worth the same as the next barrel of that grade. A share of one company is not the same as a share of another, so stocks aren't commodities.
A simple example with numbers
Most commodity trading happens through a Futures contract. The CME Group gold future (GC) covers 100 troy ounces. Its smallest move, one Tick, is $0.10 an ounce, worth $10.
So if gold moves $5 an ounce, one GC contract moves 100 × $5 = $500. The micro gold future (MGC) covers 10 ounces, so the same $5 move is $50. The futures tick value calculator works out any contract. Check cmegroup.com for current specs.
What moves commodity prices
- Supply: weather, harvests, mine output, OPEC+ decisions for oil, storage levels
- Demand: factory activity, travel, China's economy for metals
- The US dollar: most commodities are priced in dollars, so a stronger dollar often weighs on them
- Fear and rates: gold often reacts to interest rates and to Risk-on and risk-off moods
Each market has its own habits. See the gold and crude oil futures pages, or our gold trading guide.
Why it matters
Commodities touch everyday life: fuel, food, the metal in your phone. Prices for things like oil feed into Inflation, which feeds into central bank decisions, which move stocks and currencies too.
A common mistake
Forgetting how much one contract moves. Crude oil (CL) is 1,000 barrels, so a $1 move is $1,000 per contract. Beginners used to stock prices can be surprised. Work out the dollar risk from your stop before you enter.
Questions
Can you trade commodities without futures?
Yes. Many people use ETFs that track a commodity, or shares of companies that produce it. Each works differently, so check how the fund gets its exposure.
Is gold a commodity or a currency?
Gold is a commodity, but it's often treated like money. Forex brokers quote it as XAU/USD, and many traders watch it as a Safe haven.
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