Commodity Trading Beginner's Guide: How to Choose Truly Worthwhile Assets?

In the global investment arena, commodities hold a position equal to stocks, bonds, and foreign exchange assets. The reason they attract so much attention is primarily because—supply is vast, demand remains stable, liquidity is excellent, and price movements can accurately reflect the pulse of the global economy. So, how can ordinary investors find suitable commodities among numerous trading options? The answer lies in understanding their characteristics and investment logic.

What exactly are commodities? Why are they worth paying attention to?

Commodities fundamentally refer to large-volume, tradable physical goods with commodity attributes used in industrial production and consumption. Unlike retail products, their features can be summarized in one word—“large”: large supply scale, high market demand, high circulation volume, and substantial inventories. Because of this characteristic, they are often positioned at the upstream of the entire industry chain, significantly impacting downstream product costs.

Overview of main categories

The commodities trading market includes six major categories:

Energy Sector covers crude oil, gasoline, fuel oil, natural gas, and electricity. Among these, crude oil is the most liquid and has the highest trading volume. Why? Because downstream products derived from crude oil are widely used in daily life—plastics for food packaging, PTA for clothing, PVC for flooring and pipelines, gasoline for transportation—making crude oil truly the king of commodities.

Industrial Metals include copper, aluminum, lead, zinc, and iron ore. These commodities are most directly correlated with economic cycles—demand surges during prosperity and faces pressure during recessions.

Precious Metals encompass gold, silver, palladium, and platinum. Compared to industrial metals, precious metals are “precious”—their unit prices are higher, and they are almost immune to corrosion or deterioration, giving them attributes of value preservation, hedging, and even serving as currency.

Agricultural Products (soybeans, corn, wheat, etc.) are directly related to food security, with large and relatively stable demand.

Soft Commodities (sugar, cotton, coffee, etc.) are heavily influenced by climate and natural disasters, leading to more volatile prices.

Livestock Products (pork, beef, etc.) are closely linked to global meat consumption trends.

Additionally, since most commodities rely on maritime transportation, shipping indices are also considered a special investment category.

The six key indicators for investing in commodities

Not all commodities are suitable for investment. For example, electricity futures, although with large supply and demand, are limited by transportation scope and regional price constraints, making them less attractive to most investors. So, what kinds of commodities are worth paying attention to?

First, market liquidity must be sufficient. The product should have enough capital participation to ensure a sound pricing mechanism and prevent price manipulation. Mainstream commodities like crude oil, copper, gold, soybeans, and corn meet this criterion.

Second, global pricing should be relatively centralized. The commodity should be listed on multiple exchanges worldwide, forming a unified price reference. Crude oil and gold are typical examples—regardless of where they are traded, prices follow global standards.

Third, storage and transportation costs should be reasonable. Metals and some grains are easy to store and less affected by regional or climate factors, significantly reducing holding costs.

Fourth, products must be standardized. The quality of commodities needs to be uniform and widely recognized. Gold and crude oil, regardless of origin, are subject to strict quality controls.

Fifth, demand should remain stable over the long term. There should be persistent, solid demand for these commodities globally—such as energy (oil, natural gas) and food (wheat, soybeans).

Sixth, transparency and accessibility of fundamental information. Investors should be able to judge price trends based on economic logic rather than solely relying on technical analysis, which helps improve decision success rates.

Based on these criteria, crude oil, copper, aluminum, gold, silver, soybeans, corn, sugar, and cotton are the nine most valuable investment options.

Seize opportunities from global economic resonance

A key insight in commodity trading is that they all follow a unified global pricing mechanism, meaning the greatest investment opportunities often arise when major economies’ cycles resonate.

A typical example is after the 2020 pandemic outbreak—central banks worldwide coordinated to implement quantitative easing policies, leading to an inflationary environment where “money outpaces goods,” resulting in a broad rally across the entire commodity sector. This clearly indicates that macroeconomic policy shifts often serve as powerful drivers for commodity trading.

Practical paths for participating in commodity trading

For most investors, commodity trading mainly involves derivatives, including futures and options. Among these, futures are the most common entry tool.

Understanding the pricing logic of futures contracts

Each futures contract has a clear underlying— for example, crude oil futures are based on crude oil. Once the underlying is identified, the second step is to understand the contract’s expiration month. This is crucial because futures prices are essentially market expectations of the spot price at that month. In other words, you need to forecast the approximate spot price at expiration and make trading decisions accordingly.

Fundamental analysis is the core weapon

The final price of commodities futures depends on three major factors: macroeconomic conditions, supply levels, and demand levels for the specific commodity. Deep research into these three aspects is called fundamental analysis. Fundamentals determine the direction and magnitude of price movements—this is the “soul” of price.

Technical analysis should complement fundamentals

While technical analysis (candlesticks, moving averages, indicators, etc.) is also important, avoid relying solely on it. The correct approach is: use fundamentals to guide the overall trend and expected magnitude, and technicals to precisely time entry and exit points. Combining both allows you to see the trend clearly and seize opportunities effectively.

Summary: systematic participation in commodity trading

Engaging in commodity trading essentially involves re-pricing the global industrial chain. For investors, success hinges on:

1. Precise selection—focusing on high-liquidity, globally priced, fundamental-driven commodities like crude oil, copper, aluminum, gold, silver, soybeans, corn, sugar, and cotton.

2. Dual approach—mastering both fundamental and technical analysis, allowing mutual validation and complementarity.

3. Macro timing—grasping global economic cycles and seizing major opportunities when policies in key economies align.

Commodity trading requires more than luck; it demands a systematic methodology and continuous learning. Once these principles are mastered, ordinary investors can find their own opportunities in the global commodities market.