What Is the Commodity Market? An Introduction

Commodities are raw materials or basic goods used to produce other products — crude oil, gold, wheat, natural gas, and coffee are all commodities. Unlike a stock, which represents ownership in a specific company, a commodity is a physical good, and its price is driven primarily by real-world supply and demand for that actual product rather than by the performance or earnings of any single business.

The commodity market exists to let producers and consumers of these raw materials manage price risk, alongside investors who trade commodities for profit without ever intending to take physical delivery. A farmer growing wheat, for example, can use the futures market to lock in a selling price months before harvest, protecting against the risk that prices fall by the time the crop is ready — this is called hedging, and it's the original economic purpose commodity markets were built to serve.

Commodities are generally grouped into four broad categories: energy (crude oil, natural gas), metals (gold, silver, copper), agriculture (wheat, corn, soybeans), and softs (coffee, sugar, cotton). Each category tends to respond to a different set of price drivers — energy is heavily influenced by geopolitics and production decisions from oil-producing nations, agriculture by weather and growing seasons, and precious metals often by interest rates and currency movements.

For retail traders, commodities are rarely traded through direct physical ownership — instead, most access them through CFDs, futures contracts, or exchange-traded funds (ETFs) that track a commodity's price, which is covered in more detail in the lesson on how to actually invest in commodities.