How to Invest in Commodities: Futures, CFDs, ETFs, and Spot Trading

Futures contracts are agreements to buy or sell a set quantity of a commodity at a fixed price on a specific future date. They're the original, most direct way to trade commodities and are used by both producers hedging real physical risk and speculators seeking price exposure. Futures are typically traded on margin (a fraction of the contract's full value), which amplifies both gains and losses, and they have expiration dates — a position needs to be closed or "rolled" into a new contract before expiry if physical delivery isn't intended.

CFDs (contracts for difference) let a trader speculate on a commodity's price movement without owning the underlying asset or dealing with a futures contract's expiration and delivery mechanics. A CFD simply pays out the difference between the entry and exit price. This makes CFDs more accessible for retail traders wanting flexible position sizes and no delivery risk, though — like futures — they're typically leveraged, so losses can also exceed the amount used to open the position.

ETFs (exchange-traded funds) that track a commodity's price offer a simpler alternative — buying a commodity ETF works just like buying a stock through a regular brokerage account, with no margin calls or expiration dates to manage. Some commodity ETFs hold the physical commodity (common with gold ETFs), while others hold futures contracts internally, which can cause the ETF's return to diverge slightly from the commodity's actual spot price over time — worth checking before assuming an ETF tracks the underlying price exactly.

Spot trading means buying or selling a commodity at its current market price for near-immediate settlement, without a futures contract's future delivery date. In retail trading platforms, "spot" commodity trading is usually still executed through CFD-style pricing rather than actual physical delivery, so it's worth confirming exactly what mechanism a given broker or platform is using before trading.