CFD Commodity Trading
Contract For Difference (CFD) commodity trading allows for investors to bid on the changes in the value of particular commodities. CFDs do not require the trader to own the commodities themselves, only the difference from the initial price is exchanged between the broker and investor when the trade is complete. This article will discuss what commodities are, what CFD commodity trading is, what to look out for and the best online brokers.
Best CFD Commodity Trading Brokers
- AvaTrade - AvaTrade's 1250+ leveraged CFD products span a wide range of asset classes including stocks, indices, commodities, bonds, crypto, and ETFs. You can speculate on underlying assets in the broker’s feature-rich web and mobile platforms with market-leading research tools to help discover opportunities.
- Deriv.com - You can trade CFDs on popular markets, including the broker's exclusive synthetic indices which are available 24/7. There are plenty of charting tools available for technical traders, including over 20 indicators in the Deriv Trader platform. New users can also open an account and start trading CFDs instantly.
- Pepperstone - Pepperstone maintains its position as one of the fastest and most dependable CFD brokers during our latest round of testing. With execution speeds averaging around 30ms and an outstanding fill rate of 99.90%, the broker ensures a seamless trading experience without requotes or dealing desk interference. It also provides ample trading opportunities across over 1,300 assets.
- XM - Day traders can speculate on leveraged CFDs with zero commissions, spanning popular markets including currencies, equities and commodities. Additionally, the MetaTrader platforms collectively offer dozens of advanced technical indicators built for short-term strategies.
- IC Markets - You gain access to over 2,250 CFDs, available for trading 24/5 across popular markets such as forex, commodities, indices, stocks, and bonds. Utilizing deep liquidity and advanced bridge technology, IC Markets ensures optimal conditions for scalpers, hedgers, and algo traders alike.
CFD Commodity Trading Comparison
| Broker | CFD Leverage | Minimum Deposit | Minimum Trade | Regulators | Visit |
|---|---|---|---|---|---|
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1:30 (Retail) 1:400 (Pro) | - | 0.01 Lots | ASIC, CySEC, FSCA, ISA, CBol, FSA, FSRA, BVI, ADGM | Visit |
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1:1000 | $5 | 0.01 Lots | MFSA, LFSA, VFSC, BFSC | Visit |
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1:30 (Retail), 1:500 (Pro) | $0 | 0.01 Lots | FCA, ASIC, CySEC, DFSA, CMA, BaFin, SCB | Visit |
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- | $5 | 0.01 Lots | ASIC, CySEC, DFSA, FSC, FSCA | Visit |
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1:30 (ASIC & CySEC), 1:500 (FSA), 1:1000 (Global) | $200 | 0.01 Lots | ASIC, CySEC, FSA | Visit |
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- | $100 | 0.01 Lots | ASIC, FCA, xCySEC, SCB | Visit |
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1:30 | $50 | 0.01 Lots | CySEC | Visit |
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1:30 (Retail), 1:50 (Accredited Investor), 1:200 (Sophisticated Investor), 1:300 (Wholesale Investor), 1:400 (Professional Trader). Varies with jurisdiction. | $0 | 0.01 Lots | ASIC, FCA, MAS | Visit |
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1:2000 | $10 | 0.01 Lots | FSA, CySEC, FCA, FSCA, FSC, CBCS | Visit |
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- | $100 | 0.01 Lots | ASIC | Visit |
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1:200 (Retail), 1:500 (Pro) | $100 | 0.01 Lots | NFA, CFTC, CIRO, FCA, CYSEC, ASIC, SFC, FSA, MAS, CIMA | Visit |
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- | $50 | $10 | FCA, ASIC, CySEC, FSA, FSRA, MFSA | Visit |
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1:2000 | $10 | 0.01 Lots | IFSC | Visit |
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- | - | - | - | Visit |
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1:1000 | $20 | 0.01 Lots | - | Visit |
#1 - AvaTrade
Why We Chose AvaTrade
AvaTrade's 1250+ leveraged CFD products span a wide range of asset classes including stocks, indices, commodities, bonds, crypto, and ETFs. You can speculate on underlying assets in the broker’s feature-rich web and mobile platforms with market-leading research tools to help discover opportunities.
"AvaTrade offers the full package for short-term traders. There is powerful charting software, reliable execution, transparent fees, and fast account opening with a low minimum deposit."
- DayTrading Review Team
- FTSE Spread: 0.5
- GBPUSD Spread: 1.5
- Stocks Spread: 0.13
- Leverage: 1:30 (Retail) 1:400 (Pro)
- Regulator: ASIC, CySEC, FSCA, ISA, CBol, FSA, FSRA, BVI, ADGM
- Platforms: WebTrader, AvaTradeGO, AvaOptions, MT4, MT5, AlgoTrader, TradingCentral, DupliTrade
About AvaTrade
AvaTrade is a leading forex and CFD broker, established in 2006 and regulated across 9 jurisdictions. Over 400,000 users have signed up with the broker which processes over 2 million trades each month. The firm offers multiple trading platforms, including MT4, MT5, and a proprietary WebTrader. 1250+ financial instruments are available for day trading, alongside a comprehensive education center and multilingual customer support.
Pros
- AvaTrade is a heavily regulated and trustworthy broker with licenses from the ASIC, CySEC and more
- Automated trading is supported through MetaTrader Expert Advisors (EAs), as well as the AvaSocial and DupliTrade tools
- WebTrader is well-suited to beginners and features a strong suite of technical analysis tools and market research for day traders
Cons
- There’s an above-average $50 inactivity fee after three months, though this won't impact active day traders
- Traders from the US are not accepted
- It’s a shame that there are no rebate schemes for serious traders looking for additional perks - CMC Markets would be a better choice here
#2 - Deriv.com
Why We Chose Deriv.com
You can trade CFDs on popular markets, including the broker's exclusive synthetic indices which are available 24/7. There are plenty of charting tools available for technical traders, including over 20 indicators in the Deriv Trader platform. New users can also open an account and start trading CFDs instantly.
"Deriv.com will suit day traders looking to make fast-paced trades using CFDs and multipliers with high leverage up to 1:1000. The broker is also the industry leader in synthetic indices, which simulate real market movements and are available around the clock. "
- DayTrading Review Team
- FTSE Spread: 0.5
- GBPUSD Spread: 0.5
- Stocks Spread: 0.07
- Leverage: 1:1000
- Regulator: MFSA, LFSA, VFSC, BFSC
- Platforms: Deriv Trader, MT5
About Deriv.com
Deriv.com is a low cost, multi-asset broker with over 2.5 million global clients. With just a $5 minimum deposit, the firm offers CFDs, multipliers and more recently accumulators, alongside proprietary synthetic products which can't be found elsewhere. Deriv provides both its own in-house charting software and the hugely popular MetaTrader 5.
Pros
- Traders can use multipliers between 1 and 30, with take profit, stop loss and deal cancellation parameters
- Beginners and experienced day traders can access a good range of 20+ technical indicators in Deriv Trader vs 30+ in MT5
- There's a good range of fast deposit and withdrawal methods with zero payment fees and low minimum deposits
Cons
- The range of 100+ assets trails some competitors such as Quotex which offers 400+
- There are limited copy trading tools and analysis features compared to alternatives like IQ Cent
- There's no loyalty program or rebate scheme for high volume traders
#3 - Pepperstone
Why We Chose Pepperstone
Pepperstone maintains its position as one of the fastest and most dependable CFD brokers during our latest round of testing. With execution speeds averaging around 30ms and an outstanding fill rate of 99.90%, the broker ensures a seamless trading experience without requotes or dealing desk interference. It also provides ample trading opportunities across over 1,300 assets.
"Pepperstone stands out as a top choice for day trading, offering razor-sharp spreads, ultra-fast execution, and advanced charting platforms for experienced traders. New traders are also welcomed with no minimum deposit, extensive educational resources, and exceptional 24/7 support."
- DayTrading Review Team
- FTSE Spread: 1.0
- GBPUSD Spread: 0.4
- Stocks Spread: 0.02
- Leverage: 1:30 (Retail), 1:500 (Pro)
- Regulator: FCA, ASIC, CySEC, DFSA, CMA, BaFin, SCB
- Platforms: MT4, MT5, cTrader, TradingView, AutoChartist, DupliTrade
About Pepperstone
Established in Australia in 2010, Pepperstone is a top-rated forex and CFD broker with over 400,000 clients worldwide. It offers access to 1,300+ instruments on leading platforms MT4, MT5, cTrader and TradingView, maintaining low, transparent fees. Pepperstone is also regulated by trusted authorities like the FCA, ASIC, and CySEC, ensuring a secure environment for day traders at all levels.
Pros
- Pepperstone boasts impressive execution speeds, averaging around 30ms, facilitating fast order processing and execution that’s ideal for day trading.
- Now offering spread betting through TradingView, Pepperstone provides a seamless, tax-efficient trading experience with advanced analysis tools.
- Award-winning customer support is available via telephone, email or live chat with response times of <5 minutes during testing.
Cons
- Pepperstone’s demo accounts are active for only 30 days, which may not be not long enough to familiarize yourself with the different platforms and test trading strategies.
- Pepperstone does not support cTrader Copy, a popular copy trading feature built into the excellent cTrader platform and available at alternatives like IC Markets.
- Despite enhancements to its range of markets, crypto offerings are relatively limited compared to other brokers such as eToro, with no option to invest in real coins.
#4 - XM
Why We Chose XM
Day traders can speculate on leveraged CFDs with zero commissions, spanning popular markets including currencies, equities and commodities. Additionally, the MetaTrader platforms collectively offer dozens of advanced technical indicators built for short-term strategies.
"XM is one of the best forex and CFD brokers we have tested. The flexible account types will suit a variety of short-term trading styles while the $5 minimum deposit and smooth sign-up process make it easy to start trading."
- DayTrading Review Team
- FTSE Spread: 1.5 pts
- GBPUSD Spread: 1.9
- Stocks Spread: 0.002
- Regulator: ASIC, CySEC, DFSA, FSC, FSCA
- Platforms: MT4, MT5
About XM
XM is a globally recognized forex and CFD broker with 10+ million clients in 190+ countries. Since 2009, this trusted broker has been known for its low fees on 1000+ instruments. XM is regulated by multiple financial bodies, including the ASIC and CySEC.
Pros
- XM is a hugely respected broker authorized by tier-one regulators
- Transparent and low fees with spreads from 0.0 pips that will help protect day trading profit margins
- Powerful MT4 and MT5 platforms are available with 60+ and 80+ technical charting tools
Cons
- PayPal deposits are not supported
- There is weak regulatory oversight through the global entity
- There's $5 inactivity fee after only 3 months, though this won't affect active traders
#5 - IC Markets
Why We Chose IC Markets
You gain access to over 2,250 CFDs, available for trading 24/5 across popular markets such as forex, commodities, indices, stocks, and bonds. Utilizing deep liquidity and advanced bridge technology, IC Markets ensures optimal conditions for scalpers, hedgers, and algo traders alike.
"IC Markets offers superior pricing, exceptionally fast execution and seamless deposits. The introduction of advanced charting platforms, notably TradingView, and the Raw Trader Plus account, ensures it remains a top choice for intermediate to advanced day traders."
- DayTrading Review Team
- FTSE Spread: 1.0
- GBPUSD Spread: 0.23
- Stocks Spread: 0.02
- Leverage: 1:30 (ASIC & CySEC), 1:500 (FSA), 1:1000 (Global)
- Regulator: ASIC, CySEC, FSA
- Platforms: MT4, MT5, cTrader, TradingView, TradingCentral, DupliTrade
About IC Markets
IC Markets is a globally recognized forex and CFD broker known for its excellent pricing, comprehensive range of trading instruments, and premium trading technology. Founded in 2007 and headquartered in Australia, the brokerage is regulated by the ASIC, CySEC and FSA, and has attracted more than 180,000 clients from over 200 countries.
Pros
- IC Markets offers among the tightest spreads in the industry, with 0.0-pip spreads on major currency pairs, making it especially cost-effective for day traders.
- You have access to over 2,250 CFDs across various markets, including forex, commodities, indices, stocks, bonds, and cryptocurrencies, allowing for diversified trading strategies.
- With ultra-fast execution speeds averaging 35 milliseconds and deep liquidity, IC Markets provides an optimal trading environment for scalpers, hedgers, and algorithmic traders.
Cons
- The breadth and depth of tutorials, webinars and educational resources still need work, trailing alternatives like CMC Markets and reducing its suitability for beginners.
- There are fees for certain withdrawal methods, including a $20 wire charge, which can eat into profits, especially for frequent withdrawals.
- Despite four industry-leading third-party platforms, there is no proprietary software or trading app built with new traders in mind.
What Are Commodities?
A commodity is a physical good that is usually a natural resource. Commodities of the same type are considered (almost) equal, no matter who produced them.
Goods and commodities that are fungible are not differentiated by brands or quality and their prices are determined by the performance of the market as a whole, closely following supply and demand.
Examples of goods that are used for CFD commodity trading are precious metals, oil and agricultural goods like rice.
Hard Commodities
Hard commodities are defined as those that are mined or extracted from the earth, i.e. natural resources that are not renewable. These are generally the most popular for CFD commodity trading and can be categorised into the following:
Metals
Metal commodities include gold, silver, copper and platinum. These metals are used in a variety of applications, such as jewellery (gold, silver), electronic wiring (copper) and other industrial uses (platinum, copper, silver etc.). Precious metals are, at times, invested in due to their reputation of being reliable stores of value, which can provide stability to some during periods of extreme market volatility.
Energy
Energy commodities consist of resources such as oil, natural gas, gasoline, etc. These commodities can also have other applications such as the production of plastics (oil), transportation (gasoline) and generating electricity (gas). Instability in this commodity market was seen during the COVID-19 pandemic, where the price of oil drastically fell due to the decrease in demand. Geopolitical factors can also influence the price of oil, particularly the policies of OPEC (Organisation of Petroleum Exporting Countries).
Soft Commodities
Soft commodities are defined as those that can be grown and cultivated, i.e. renewable resources. As such, the prices of these commodities are often more volatile, depending on external factors like climate and other environmental conditions. This has led to less popularity for CFD commodity trading than hard commodities, though investors with a large risk appetite may prefer these.
Agriculture
Agricultural commodities are natural resources like wheat, rice, coffee and corn. These are used as sources of food for both people and livestock, as well as the production of other products. It is common for the price of these goods to be heavily impacted by periods of turbulent weather, population growth and natural disasters.
Why Are Commodities Suitable For CFD Trading?
The price of commodities is affected by the concept of supply and demand. If there is more demand for the good than supply, then the price of the commodity increases, and vice versa. The growth of large economies like India and China has led to increases in the demand for various goods, such as metals and energy. Additionally, recent changes in the economic climate due to the pandemic have further impacted the rise and fall in the value of various commodities, making CFD commodity trading appealing given the ability to both buy long and sell short on these market variations.
Pros & Cons
Key takeaways that you should keep in mind about why CFD commodity trading could be beneficial to you are:
- You only need to deposit a small percentage of the full commodity value (usually around 5-10%) to open your position on the market through the use of margin trading.
- Traders can take a position on an increase in value of a commodity without having to physically purchase and take ownership of it.
- You can “short” a commodity if it is going down in value, allowing you to trade during bearish markets.
However, there are negatives that you should be aware of and understand before CFD commodity trading:
- You will never own the underlying commodity when trading with CFDs.
- Although the profits could be great, the losses can be just as big. For every point that the market moves against you, you will make a loss. Margin trading can cause you to lose more than your initial investment.
- CFD commodity trading, and indeed any CFD trading, is banned in certain financial jurisdictions, such as the US.
Strategies
CFD commodity trading is a different playing field from investing in company stocks. Given that CFDs are used for the most part as short-term investments, you will likely want to employ short-term intraday trading strategies when trading gold, coffee or other commodities.
You should also check the hours that the particular markets are open for trade. For coffee, the CFD commodity trading hours may be different from those of UK oil. As a general rule of thumb, CFD commodity trading can be conducted provided that the physical commodity market is open for trading.
Checking The News
You must look at the current price trends and latest news releases before beginning CFD commodity trading. Given that commodities are greatly influenced by supply and demand, you should take a bit of time to make yourself familiar with the particular instrument that you are interested in.
Is there a shortage of the particular commodity? Is there a surplus due to an exceptional harvest? Are there any laws or regulations being implemented that may impact the commodity? These are the sorts of questions you should be asking.
For example, when the news reported that a surplus of crude oil was beginning to form due to the drastic fall in demand for fuel during the initial lockdowns of the pandemic, it would have made sense to “short” the oil market as the price is expected to fall.
Hedging
As CFD commodity trading allows you to “short” a market, so you can trade any drop in value, you can utilise this as a means of counterbalancing your investment portfolio.
If you predict a sell-off of a commodity that you have already invested in, you can obtain short CFDs at a fraction of the price (using the margin decided by your broker) for the same amount of the commodity you possess.
This means any losses would be offset by the returns you make on the short CFD trade.
Check that your broker permits hedging first.
Scalping
This is one of the more popular strategies for CFD commodity trading. The aim of scalping is to exit positions quickly, with the aim of making small gains, reducing the risk of losing money from market reversals.
Again, check your broker permits scalping prior to trading.
As individual gains are often low, high margin levels are often used and a large number of trades are made throughout the day.
How To Start CFD Commodity Trading
Choose A Broker
To begin CFD commodity trading, you will need to choose a broker. Some of the key factors to consider are:
- Margin: If you plan to make use of leverage in your CFD commodity strategy, you should check whether a broker offers high leverage rates and low margin rates.
- Spreads: CFD brokers usually make their money through bid-ask spreads. The advertised buy price for a commodity will be higher than the actual market value and the sell price will be lower. The smaller than spread, the less the market needs to move for the trade to break even – or better.
- Costs & Fees: If holding a position overnight, brokers usually charge interest, which can increase with the number of days you maintain the position. These often vary between brokers, so if you intend to keep overnight holdings you should carefully consider these extra fees.
- Reputation: Is the broker well known? Have there been any reported issues with their platform before?
Popular CFD brokers such as Trading 212 and eToro allow you to trade most commodities — especially popular ones like gold — using CFDs.
Opening Your Position
Before opening any position on a commodity of your choice, you should only invest an amount that you are comfortable with losing.
On most broker platforms, opening up a CFD commodity trading position is simple and easy. You will be presented with an option to buy (go long) or sell (short) your chosen commodity. Going long on a commodity will mean that you will gain when the price of the commodity increases while shorting a commodity is the opposite.
The CFD trading view on the broker platform should offer you most of the information you require to place your position, such as any graphs and informatics on the chosen commodity market.
Monitoring Your Position
Given that the losses incurred when CFD commodity trading can be considerable and profit windows can be slim, you should keep tabs on any open positions.
If you believe that the commodity market in which you invested is beginning to move in the wrong direction, you should consider exiting to reduce or avoid losses. Some platforms allow you to place stop-limit boundaries, which help you define your acceptable loss limit before automatically exiting.
Tips For Trading
Here are a few helpful tips that you can take on board whilst CFD commodity trading:
- Don’t take on more than you can afford. Given that the per-point value difference is magnified by the size of your trade, you should set yourself a limit on what you consider an acceptable loss.
- Automate exiting your positions to help avoid losing more than you want and retaining trading capital.
- CFD commodity trading with margin could result in greater profits than otherwise, though losses will also be magnified in the same way.
- Be wary of any exchange rate fees. Some platforms may open your CFD trading positions in a different currency from your account’s base currency. Brokers will usually credit or charge your account after the exchange has been executed at the time of the transaction.
- CFD commodity trading can be used to hedge other investments, such as company stocks dependent on natural resources or currencies for economies that are heavily based on commodity exports.
Final Word On CFD Commodities Trading
CFD commodity trading greatly improves the accessibility of the commodities markets, allowing retail traders to viably trade price fluctuations of natural resources without the logistic issues presented by physically purchasing the goods. CFDs also allow for margin trading, automated trading and the shorting of commodities from gold to crude oil to coffee beans. To get started with CFD commodity trading today, see our list of the top brokers here.
FAQs
What Is CFD Commodity Trading?
This is a form of derivatives trading that allows traders to speculate on commodity prices without owning the assets in question. When trading a commodity with a CFD, it allows the investor to speculate on the future price of that commodity without having to actually own it. One of the advantages of this method is that you can profit from the decrease in value as well as the increase.
What Are Commodities?
Commodities are physical goods that are often heavily involved in international trade. These can be energy sources like natural gas, precious metals like gold and silver or agricultural products like wheat or tea.
Supply and Demand?
Supply and demand is an economic model of price determination that is important to understand when CFD commodity trading. In a nutshell, when there is more supply than demand, the value of the commodity will decrease, and vice versa.
What Is Going Long And Short?
Going long when CFD commodity trading is much like purchasing some of a commodity. It is a prediction that the value of an asset will rise. Shorting an asset, or going short, is the opposite and the trade would finish in profit with a fall in the value of the asset – but lose if the asset value rose.
Can I Start CFD Commodity Trading In My Country?
Some countries like the US have banned CFD trading full stop. Whilst other countries may allow it, some only allow certain approved brokers to do these kinds of trades.