Generally speaking, commodities trade either in spot markets or derivatives markets. Spot markets are also referred to as “physical markets” or “cash markets” where buyers and sellers exchange physical commodities for immediate delivery. Derivatives markets involve forwards, futures, and options.

What are commodities and where are they traded?

Commodities are physical goods that are bought, sold and traded in markets, distinct from securities such as stocks and bonds that exist only as financial contracts. There are four main types of commodities: Energy. The energy market includes oil, natural gas, coal and ethanol—even uranium.

How do you buy or sell commodities?

There are three ways to own commodities: own the physical commodity itself, buy futures contracts, or buy through a mutual fund or ETF. Owning gold coins is an example of a physical holding, while trading a futures contract is the more advanced investment strategy.