How to invest in commodities – from coffee to cattle | Finder NZ

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How to invest in commodities

Coffee, cotton and even cattle. Find out how you can invest in commodities.

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What are commodities?

Commodities are, pretty simply, things that aren’t much different from one another if you were to get them from other sources. When you’re in the supermarket buying flour, there isn’t really much difference between the different brands. If they don’t have the one you usually buy, you would generally just choose another one.

It’s helpful to think about things which aren’t commodities to understand it further. These are items that aren’t interchangeable. You’d be pretty annoyed if you ordered a box of tampons from the supermarket and they were substituted with mandarins.

There are two categories of commodities:

  • Hard commodities are ones that need to be mined or drilled to be found, such as metals and energy products.
  • Soft commodities are ones which are grown, like corn and wheat.

Are commodities volatile?

Commodities’ volatility (how much the price moves up and down) is generally reflective of the supply and demand. If there were loads of avocados grown just as everyone decided they didn’t like guacamole anymore, then the price of your average avocado is likely to go down. If a worldwide virus leads to everyone panic buying toilet roll, you’re likely to see the price rise.

Due to supply and demand, the volatility of commodities tends to be higher than for other types of investment, but this depends entirely on the commodity.

List of commodities

This isn’t an exhaustive list of commodities, but it gives you a good idea of what can be considered to be a commodity.

How can I invest in commodities?

There are four different ways that you can invest in commodities:

  • Purchasing the commodity
  • Investing in commodity futures contracts
  • Buying commodity exchange traded funds (ETFs)
  • Buying stocks and shares in companies that produce commodities

Purchasing the commodity

You can choose to invest in a commodity by purchasing the commodity. You can often do this by looking for a dealer that sells the commodity and purchasing it from them. You can choose whether you want to eventually sell it back to the original dealer or to sell to someone else.

This is often done with gold and silver, but you’ll need to ensure that you have somewhere to store the commodity between buying and selling it.

Investing in commodity futures contracts

If you’re not familiar with futures contracts, they’re quite simple. Instead of purchasing the stock now, you are agreeing to purchase it at a specified point in the future. These were created for sellers like farmers, who would start creating a stock long before it could actually be sold, to help manage the financial risk.

Nowadays, futures contracts aren’t solely for farming. You can purchase futures contracts in just about anything, and they don’t always end with physical items.

Buying commodity exchange traded funds (ETFs)

Commodity ETFs allow you to invest in a series of different firms or companies, allowing you to spread your investment out and reduce the risk. We explain ETFs in some detail in our handy guide if you’re not completely sure on how they work.

ETFs are a much simpler way of accessing the stock market, so they’re quite well suited to newbies. There are loads of ETFs for a huge range of different commodities, so you have plenty of choice.

Buying stocks and shares in companies that produce commodities

Which stocks and shares you choose to purchase will depend on what specific commodity you fancy investing in. Do some research into the commodity you want to invest in to find out some companies that produce it and buy shares in those companies.

You might need to know your way around the stock market to buy shares. The share trading platform that you choose to use will have some guidance to help you along the way.

Are commodities a good investment?

In general, yes. Commodities are often things that you would continue buying even if there was a recession. They’re an example of a safe haven, which means that they continue to perform even when other stocks are reducing in value. Everyone will still need to eat, clean and travel, no matter the circumstances, so it’s generally seen as a good investment because they’re less risky.

Compare share trading platforms

Compare trading platforms to buy commodities

Data updated regularly
Name Product Available Investment Types Min. Monthly Fee Currency Conversion Fee Available Markets
Stake
Shares, ETFs
$0
1% ($2 min)
NASDAQ, NYSE, BATS, Chicago Stock Exchange, and more
Sign up through Finder and use referral code "FINDERNZ" for a free stock. Trade more than 3,800 US-listed stocks and ETFs through Stake with $0 fees on trades.
Hatch
Shares, ETFs
$0
0.5%
NASDAQ, NYSE
Invest in more than 3,900 US companies and exchange-traded funds (ETFs). No minimum investment or monthly fees.
Sharesies
Shares, ETFs, Managed Funds, Index Funds
$0
0.4%
NASDAQ, NYSE, NZX, CBOE
Trade and invest in more than 3,000 companies, ETFs and managed funds across New Zealand and the US.
ASB Securities
Shares, ETFs, Bonds
$0
1% of value ($10 minimum)
ASX, NZX, and more
Direct Broking
Shares, ETFs, Bonds
$5 per month
Up to 1.50% of transaction value
ASX, NZX
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Compare up to 4 providers

Data updated regularly
Name Product Minimum Opening Deposit Minimum Opening Deposit Commission Available Markets Platforms
Plus500 CFD
NZ 100
100
No commission
Indices, FX, Shares, Commodities, Cryptocurrency, ETFs, Options
Plus500 WebTrader
CFDs are complex financial products and traders are at high-risk of losing all of or more than their initial investment.
Finder exclusive offer: Open a new trading account and receive a welcome bonus of NZ$120 when you deposit your first $400 and enter the bonus code “Special200”. Ts&Cs apply.
Trade CFDs on shares, forex, crypto, indices, commodities and more.
BlackBull Markets CFD
USD 200
200
No commission
Indices, FX, Commodities, Precious metals
MetaTrader 4, MetaTrader 5
CFDs are complex financial products and traders are at high-risk of losing all of or more than their initial investment.
Trade CFDs on shares, forex, indices, commodities, precious metals and more.
IG Markets CFDs
AUD 0
0
0.08% with $7 minimum
Indices, FX, Shares, Commodities, Cryptocurrency, Options, ETPs
MetaTrader 4, ProRealTime
CFDs are complex financial products and traders are at high-risk of losing all of or more than their initial investment.
Trade from over 15,000 markets with a leading service for CFD trading and forex.
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Compare up to 4 providers

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

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