Commodity products that beginners should know: from basic understanding to real trading strategies

MidnightSeller · 2026-01-06T10:32:30+00:00

What is a commodity? Go back to

2026-01-06 10:32:30

New-generation investors are shifting their focus to diversify their investment channels beyond traditional stock markets. Commodities are considered an interesting option. But before rushing into trading, you should understand what commodities are, whether they are suitable for your portfolio, and which method is the safest entry point for beginners.

What are Commodities? Back to Basics

Commodity products are basic raw materials that are essential components in manufacturing or used in daily human life. Common examples include copper, crude oil, wheat, coffee beans, gold, and natural gas.

Investors can categorize commodities into two main types:

Soft Commodities - Agricultural products with limited shelf life, such as coffee, sugar, cocoa beans, oranges. They are characterized by high price volatility due to weather and other natural factors.

Hard Commodities - Extracted or mined products like oil, natural gas, and precious metals. These are natural resources that are consumed and cannot be regenerated.

Within these groups, there are also subcategories such as energy, livestock, precious metals, and agriculture.

What Factors Drive Commodity Prices?

Commodity prices are not static; they fluctuate based on market dynamics and various variables that create volatility:

Demand (Demand) - As a country’s income increases, its population tends to consume more. For low-income countries, increased income mainly goes toward food, which puts upward pressure on agricultural commodities.

Supply (Supply) - Land, labor, capital, water resources, and production technology all affect the amount of commodities entering the market. After the 2008 crisis, investment in production sectors slowed, leading to limited supply.

Uncertainties (Uncertainties) - Severe weather, political instability, strict environmental policies can all impact prices.

Speculation (Speculation) - When commodity prices rise, many investors rush into the market, creating feedback loops that push prices even higher.

Advantages: Why Is It Worth Paying Attention to Commodities?

Inflation Hedge - Gold, silver, and oil often act as “insurance” when the value of money falls. As the currency depreciates, prices of these commodities tend to rise, helping protect your portfolio from inflation.

Diversification - Commodities have low correlation with stocks and bonds. When stock markets decline, commodities often move in the opposite direction, balancing your portfolio.

Strong Returns - During uncertain times or natural disasters, commodity prices can spike rapidly due to supply-demand imbalances.

Long-term Growth Opportunities - Some commodities are essential for construction and clean energy. As the world develops, demand increases while market stocks decrease.

Disadvantages: Risks to Be Aware Of

Leverage as a Double-Edged Sword - Trading commodities often involves leverage (Leverage), which can amplify gains but also increases risks. A miscalculation can lead to losing all your invested capital unexpectedly.

Higher Volatility Than Stocks - Research shows commodities are twice as volatile as stocks and over four times more volatile than bonds. Price swings can lead to impulsive decisions.

Inverse Correlation with Financial Markets - Often, profits from commodities come when stock markets fall, which can be problematic for investors with business interests or linked benefits.

Environmental Impact - With climate change agendas and stricter environmental laws, mining, livestock, and energy industries face pressure, potentially affecting investment returns.

How Beginners Can Trade Commodities

Since you can’t buy natural gas or crude oil and store them at home, investors have four main options:

1. ETF Commodity - Easy Entry for Beginners

ETFs are (commodity baskets) you invest in without holding the actual goods. Most commodity ETFs invest in futures or derivatives.

Advantages:

Low initial investment; you can buy just one unit instead of a whole gold bar.
Easy to trade online during market hours.
No worries about storage, theft, or additional costs.

2. Futures - For Those Who Want Flexibility

Futures are contracts between two parties agreeing on price and delivery date for goods like gold, oil, stocks, bonds, and currencies.

Advantages:

Profit from both rising and falling markets (buy long, sell short).
Use margin instead of full capital, suitable for beginners with limited budgets.

3. Company Stocks in Commodities - Safe Indirect Investment

Instead of trading commodities directly, invest in stocks of companies that produce or mine those commodities, such as BHP Group, Rio Tinto, Vale, or gold mining firms.

Advantages:

Reduce risk through diversification across multiple companies.
Hedge against long-term inflation.
Receive dividends if the company profits.

4. CFD - More Stable Trading Channel

CFD (Contracts for Difference) are online trades via brokers, similar to direct investment but without physical delivery. Your position value increases or decreases with price changes.

Advantages:

Profit from both upward and downward markets.
Leverage available, suitable for limited budgets.
Hold positions across months or years without rollover like futures.
CFD markets operate 24/5, allowing trading at almost any time.

Costs to Consider

A common misconception among beginners is that profit = opening price - closing price. In reality, you must subtract several costs:

Spread - The difference between bid and ask prices. For example, if bid is 1949.02 and ask is 1949.47, the spread is 0.45. You need to surpass this spread to realize actual profit.

Swap - Overnight holding fee charged at 23:59.

Commission - Some instruments charge a fee when opening and closing trades.

When calculating your actual profit, subtract all these costs.

Commodity Trading Schedule

Commodities are not traded 24/7. They have specific opening and closing hours depending on the region. The times below are in Thailand local time:

Gold (XAUUSD) - Monday 06:00-24:00, Tuesday-Friday 00:00-24:00, Saturday 00:00-05:00, closed Sundays

Brent Crude Oil (UKOIL) - Monday 08:00-24:00, Tuesday-Friday 00:00-24:00, Saturday 00:00-05:00, closed Sundays

Natural Gas (NATGAS) - Monday 06:00-24:00, Tuesday-Friday 00:00-24:00, Saturday 00:00-05:00, closed Sundays

Coffee (COFFEE) - Monday 16:15-24:00, Tuesday-Friday 00:00-01:30, closed weekends

Sugar (SUGAR) - Monday 15:30-24:00, Tuesday-Friday 00:00-01:00, Saturday 00:00-24:00, closed Sundays

Summary: Is Commodity Suitable for You?

Commodities are an interesting investment choice for those seeking diversification and inflation protection. However, they are not suitable for everyone.

If you’re a beginner interested in trading commodities, keep these tips in mind:

Choose the right broker - Must support multiple markets, quick deposits/withdrawals, low commissions and spreads.
Avoid putting all eggs in one basket - Commodities should be part of your portfolio (15-20%) to maintain balance.
Understand the risks - Read details, learn about leverage, spreads, swaps before investing real money.
Start with a demo account - Practice trading with virtual funds first to familiarize yourself with the system and strategies.

Investing involves risks; not all will be profitable. The key is thorough education to avoid unnecessary losses.

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