# What Are Commodities? > Commodities are raw materials like oil, gold and wheat. Learn the main commodity groups, what drives their prices, how they are traded and the risks involved. Source: https://learn.tradelabsai.com/markets/what-are-commodities/ Track: Markets and Instruments · Level: Beginner · Updated: 2026-10-03 Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice. Cite as: TradeLabs Learn, "What Are Commodities?", https://learn.tradelabsai.com/markets/what-are-commodities/ Commodities are raw materials and basic goods that are interchangeable no matter who produces them. A barrel of a given grade of crude oil, a troy ounce of gold or a bushel of a given grade of wheat is essentially the same as any other. Because units are interchangeable, commodities can be traded in standard contracts on exchanges, and their prices are set by global supply and demand. ## The main commodity groups | Group | Examples | Main drivers | |---|---|---| | Energy | Crude oil, natural gas, gasoline, heating oil | Global growth, production decisions, inventories, weather, geopolitics | | Precious metals | Gold, silver, platinum, palladium | Interest rates, the US dollar, investor demand, industrial use | | Industrial metals | Copper, aluminium, nickel, zinc | Manufacturing, construction, China's economy | | Agriculture (grains) | Corn, wheat, soybeans | Weather, planting and harvest reports, exports | | Softs | Coffee, sugar, cocoa, cotton | Weather in key growing regions, crop disease, demand | | Livestock | Live cattle, lean hogs | Feed costs, disease, consumer demand | Commodities are often split into **hard** commodities, which are mined or extracted like oil and metals, and **soft** commodities, which are grown like crops. ## What makes commodity prices move Commodity prices respond to physical supply and demand far more directly than stocks do. 1. **Supply shocks.** A drought, a hurricane in the Gulf of Mexico, a mine strike or a production cut by oil producing nations can move prices sharply. 2. **Demand.** Economic growth increases demand for energy and metals; recessions reduce it. 3. **Inventories.** Stockpiles act as a buffer. Low inventories make prices more sensitive to surprises. See [Storage and Inventories](https://learn.tradelabsai.com/commodities/storage-and-inventories/). 4. **The US dollar.** Most commodities are priced in dollars, so a stronger dollar tends to weigh on prices for buyers using other currencies. 5. **Seasonality.** Crops follow planting and harvest cycles, and energy demand rises with heating and cooling seasons. See [Seasonality in Commodities](https://learn.tradelabsai.com/commodities/seasonality-in-commodities/). 6. **Investor flows.** Funds buying commodities as an inflation hedge or for diversification. **Example: How a supply shock looks** Suppose a frost damages a large share of Brazil's coffee crop. Traders expect less supply months before the next harvest, so coffee futures rise immediately, often sharply, even though coffee already in warehouses is unaffected. Prices move on expectations about future supply, not only on what exists today. ## How commodities are traded - **Futures contracts** are the main market. Producers and consumers hedge with them, and speculators provide liquidity. See [What Is a Future?](https://learn.tradelabsai.com/markets/what-is-a-future/). - **Options on futures** let traders define risk or hedge. - **ETFs and ETCs** offer exposure through a stock account. Some hold physical metal; many hold futures, which means their returns can differ from the spot price because of rolling. See [Roll Yield](https://learn.tradelabsai.com/futures/roll-yield/). - **Shares of producers**, such as oil or mining companies, give indirect exposure along with company specific risk. - **Physical ownership**, mainly for precious metals like gold coins and bars. ## Spot prices and futures curves The **spot price** is the price for immediate delivery. Futures for later months often trade at different prices because of storage costs, financing and expectations. A market where later contracts are more expensive is in [Contango](https://learn.tradelabsai.com/futures/contango/); one where they are cheaper is in [Backwardation](https://learn.tradelabsai.com/futures/backwardation/). These shapes matter a lot to anyone holding futures based products for long periods. ## Why traders and investors use commodities - **Diversification:** commodities sometimes move differently from stocks and bonds. - **Inflation protection:** raw material prices often rise when inflation does. - **Hedging:** businesses lock in costs or selling prices. - **Trading opportunities:** clear supply and demand stories and regular data releases create strong trends and volatile events. ## Risks - **Volatility:** weather and geopolitical events can cause large, sudden moves. Oil futures briefly traded below zero in April 2020 when storage ran short. - **Leverage:** futures positions are large relative to margin. - **Roll and structure effects:** long term returns of futures based products can differ greatly from spot price changes. - **Delivery:** physically settled futures must be closed before delivery unless you intend to take or make delivery. ## Frequently asked questions ### Is gold a commodity? Yes. Gold is a precious metal commodity, traded in futures, through physical bullion and through ETFs, and often used as a store of value. ### What is the most traded commodity? Crude oil is the most important and among the most heavily traded commodities in the world, followed by other energy products, metals and grains. ### Can beginners trade commodities? They can, usually through ETFs or micro futures contracts, but should first learn how futures, leverage and rolling work. ## Sources - Wikipedia, [Commodity market](https://en.wikipedia.org/wiki/Commodity_market) - U.S. Commodity Futures Trading Commission, [Learn and protect](https://www.cftc.gov/LearnandProtect) ## Continue learning - Next lesson: [Long Positions](https://learn.tradelabsai.com/markets/long-positions/) - Previous lesson: [What Is a Contract?](https://learn.tradelabsai.com/markets/what-is-a-contract/) - Related: [What Is a Contract?](https://learn.tradelabsai.com/markets/what-is-a-contract/): In trading, a contract is one standard unit of a future or option. Learn contract sizes, multipliers, how to work out a contract's value and why it matters for risk. - Related: [Commodities Trading](https://learn.tradelabsai.com/markets/commodities-trading/): How to trade commodities: futures, ETFs and producer stocks, what moves oil, gold and grains, key reports to watch, costs and the risks of commodity trading. - Related: [Commodity Market Fundamentals](https://learn.tradelabsai.com/commodities/commodity-market-fundamentals/): Commodity prices are driven by physical supply and demand, inventories, the dollar and weather. Learn the main sectors, key drivers, participants and data. - Related: [Crude Oil](https://learn.tradelabsai.com/commodities/crude-oil/): Crude oil is the world's most traded commodity. Learn WTI vs Brent, the futures contracts, OPEC+, shale, inventory reports and how traders approach oil. - Related: [Gold](https://learn.tradelabsai.com/commodities/gold/): Gold is a safe haven and inflation hedge driven by real rates, the dollar and central banks. Learn gold futures, ETFs, key drivers and how traders approach gold. - Related: [Agricultural Markets](https://learn.tradelabsai.com/commodities/agricultural-markets/): Agricultural markets cover grains, oilseeds, softs and livestock. Learn the main contracts, the USDA reports that move them, weather, seasonality and trade policy. - Related: [What Is a Future?](https://learn.tradelabsai.com/markets/what-is-a-future/): A futures contract is an agreement to buy or sell something at a set price on a future date. Learn how futures work, margin, leverage, settlement and who uses them.