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. Kind of like 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 satsumas.

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.

  • Oils, such as soybean oil and crude oil
  • Corn
  • Cocoa
  • Cotton
  • Live cattle, such as cows and pigs
  • Metals, such as gold or silver
  • Oats
  • Orange juice
  • Sugar
  • Wheat

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 you if you’re a newbie. 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?

All investing carries risk, but many commodities are items that consumers continue to buy even in a recession. Everyone will still need to eat, for example, so some people view commodities as less risky, but within that, there will be a huge range – oil is a commodity and can be highly volatile.

Compare share trading platforms

All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Capital is at risk.
Data indicated here is updated regularly
Name Product Price per trade Frequent trader rate Platform fees Brand description
Fineco
£2.95
£2.95
Zero platform fee
Your first 50 trades are free with Fineco, until 31/12/2020. T&Cs apply.
Fineco Bank is good for share traders and investors looking for a complete platform and wide offer. Capital at risk.
IG
0% commission on US shares, and £3 on UK shares
From £5
£0 - £24 per quarter
IG is good for experienced traders, and offers learning resources for beginners, all with wide access to shares, ETFs and funds. Capital at risk.
eToro Free Stocks
0% commission, no markup, no ticket fee, no management fee
N/A
Withdrawal fee & GDP to USD deposit conversion
Capital at risk. 0% commission but other fees may apply.
Hargreaves Lansdown Fund and Share Account
£11.95
£5.95
No fees
Hargreaves Lansdown is the UK's number one platform for private investors, with the depth of features you'd expect from an established platform. Capital at risk.
Interactive Investor
From £7.99 on the Investor Service Plan
From £7.99 on the Investor Service Plan
No transfer fees or exit fees. £9.99 a month on the Investor Service Plan
Open an ISA, Trading Account or SIPP you will get £100 of free trades to buy or sell any investment (new customers only).
Interactive Investor offers everything most investors need. Its flat fees makes it pricey for small portfolios, but cheap for big ones. Capital at risk.
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Compare up to 4 providers

Data indicated here is updated regularly
Name Product Minimum deposit Maximum annual fee Price per trade Brand description
Moneyfarm stocks and shares ISA
£1500
0.75%
£0
Capital at risk.
Hargreaves Lansdown stocks and shares ISA
£100
0.45%
£11.95
Hargreaves Lansdown is the UK's biggest wealth manager. It's got everything you'll need, from beginners to experienced investors. Capital at risk.
Interactive Investor stocks and shares ISA
Any lump sum or £25 a month
£119.88
£7.99
Interactive Investor offers everything most investors need. Its flat fees makes it pricey for small portfolios, but cheap for big ones. Capital at risk.
Saxo Markets stocks and shares ISA
No minimum deposit requirement
0.12%
£8.00
Saxo Markets offers a wide access to a range of stocks, ETFs and funds. Capital at risk.
AJ Bell stocks and shares ISA
£500
0.25%
£9.95
AJ Bell is a good all-rounder for people who to choose between shares, funds, ISAs and pensions. Capital at risk.
Fidelity stocks and shares ISA
£1000 or a regular savings plan from £50
0.35%
£10.00
Fidelity is another good all-rounder, offering a good package at a decent price. Not suited for trading shares. Capital at risk.
Nutmeg stocks and shares ISA
£100
0.75%
£0
Nutmeg offers three types of portfolios. Choose the one that goes with your investment style. Capital at risk.
Legal & General stocks and shares ISA
Legal & General stocks and shares ISA
£100 or £20 a month
0.61%
N/A
Legal & General is a big financial services company which offers insurance, lifetime mortgage, pensions and stocks and shares ISAs. Capital at risk.
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Compare up to 4 providers

Data indicated here is updated regularly
Name Product Minimum investment Choose from Annual fee Brand description
Moneyfarm Pension
£1,500 (initial investment)
7 funds
0.35%-0.75%
Moneyfarm has pensions that are matched against your risk appetite, goals and planned retirement date. Capital at risk.
AJ Bell Pension
£1,000
Over 2,000 funds
0.05-0.25%
AJ Bell has two different pension options, a self managed pension and one that is managed for you. Capital at risk.
PensionBee Pension
No minimum
7 funds
0.5% - 0.95%
Pension Bee is a newbie in the pension market. It helps consolidate your pension plans into one place. Capital at risk.
Hargreaves Lansdown Pension
£100 or £25 a month
2,500 funds
0-0.45%
Hargreaves Lansdown is the UK's biggest wealth manager. It's got three different retirement options. Capital at risk.
Interactive Investor Pension
Any lump sum or £25 a month
Over 3,000 funds
£10/month
interactive investor is a flat-fee platform, which makes it cost effective for larger portfolios. Capital at risk.
Saxo Markets Pension
Saxo Markets Pension
£10
Over 11,000 funds
No annual fee
Saxo Markets gives flexibility and control over your investment strategy. Capital at risk.
Penfold
Penfold
No minimum
4 portfolios
0.75-0.88%
Moneybox Pension
£1
3 funds
0.15% - 0.45% charged monthly
Manage your money with an easy-to-use Moneybox app. Capital at risk.
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Compare up to 4 providers

All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Capital is at risk.

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