Commodities are agricultural products or raw materials that can be bought, sold or traded. Commodities are broken down into four basic groups:
Commodity prices are heavily dependent on supply-and- demand, and as such are often greatly influenced by weather, natural disasters and geopolitical events. As a result, strong fundamental analysis is crucial to successful commodities trading.
Traders can trade on the price of a commodity, most commonly as a futures contract. This is a contract in which a trader purchases shares of the commodity at a future time, but in which a certain price is guaranteed, in the event that external factors, such as weather-related disasters or geopolitical events, affect the price of the commodity. For traders of CFDs on commodities, investments are based on how the trader believes the price of the commodity will behave in a pre-determined time frame.