Commodity Brokers: Which Broker is Best in 2021?

31 March 2020 | Updated: 11 June 2021

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The global commodity brokers trading space is a multi-trillion pound arena. Think along the lines of gold, silver, oil, natural gas, and wheat. Buying and selling these assets as an investor would not only be a logistical nightmare but an impossibility.

As such, you’ll need to use a commodity broker that specializes in CFD products. This allows you to invest in heaps of commodities from the comfort of your own home without needing to own or store the underlying asset.

In this article, we explore the best 5 commodity brokers currently serving the UK trading scene. We cover key metrics like regulation, trading fees, assets, payment methods, and leverage.

Note: Most newbie commodity traders lose money, not least because they do not have a firm understanding of risk management tools like stop-loss orders. As such, you need to spend the required time learning how to mitigate your risks before joining a commodity broker.

Table of Content

    What are Commodity Brokers?

    As the name suggests, a commodity broker is an online broker that allows you to buy and sell commodities from the comfort of your own home. The overarching concept is that you will buy a commodity via the broker’s website, and then sell it at a later date for a profit. Similarly, if you think that the asset will go down in value, you will hope to sell the commodity and then buy it back at a lower price.

    In terms of the asset class itself, commodities typically refer to hard assets that possess an intrinsic value. This includes everything from metals like gold and silver, energies like oil and gas, and agricultural products like wheat and grain. In other words, commodities have a real-world value because there is a demand for them.

    With that being said, like any asset in the global financial space, commodities will rise and fall in value. This is generally based on market forces. In Layman’s terms, if demand for a commodity outpaces supply, the value should, in theory, increase in the open marketplace. At the other end of the spectrum, if supply outpaces demand, then the value of the asset should go down.

    This is where commodity brokers come in. By using a regulated platform that serves UK clients, you will be able to trade dozens of commodities at the click of a button. You’ll have the option of going long and short, and most commodity brokers facilitate leverage. In return, you’ll need to pay the broker a fee, which comes in the form of trading commissions and/or the spread.

    Pros and Cons of Commodity Brokers

    The Pros

    • Buy and sell commodities at the click of a button
    • Brokers are usually regulated by the FCA, CySEC, or ASIC
    • You can speculate on the value of the asset going up or down
    • Most brokers allow you to apply leverage
    • Open an account in minutes
    • Heaps of everyday payment methods supported
    • No need to own or store the commodity to make an investment

    The Cons

    • Profits are liable for capital gains tax
    • Not all brokers are regulated
    • Most newbie traders lose money

    What Assets do Commodity Brokers Support?

    The commodity industry is huge. Brokers will typically host dozens of financial instruments within its commodities department, which allows you to build a diversified portfolio of assets.

    Below we have listed the most commonly supported assets that commodity brokers list.

    ✔️ Hard Metals

    Hard metal commodities consist of gold, silver, platinum, and copper. They are viewed as stores of value that can protect an investors wealth from the threats of inflation or an economic downturn.

    Unlike other commodity groups such as oil, hard metal prices are driven almost exclusively by market forces – especially in the case of gold. More specifically, it is virtually impossible for gold distributors to artificially influ, as the asset is scarce.

    Instead, prices are dictated by global demand and supply levels. With that said, gold often experiences a surge in value when global stock markets are down and investors seek a safe haven.

    ✔️ Energies

    The energies market is dominated by oil and natural gas. As these assets are non-renewable, prices are heavily influenced by major producers.

    For example, if Saudi-led OPEC (Organization of the Petroleum Exporting Countries) wishes to reduce the global price of oil to fend off competitors in the US, it will simply increase production levels.

    Similarly, if OPEC wishes to increase prices, it will cut back on production. Oil and natural gas prices are also influenced by geopolitical events, such as tensions in the Middle East.

    ✔️ Agricultural

    Although less demanded by retail traders, online commodity brokers will also list a number of agricultural assets. This includes the like of wheat, corn, cotton, sugar, rice, and cocoa.

    Interestingly, as farmers are heavily impacted when global prices go up and down, they often invest in futures contracts as a form of hedging. This ensures that farmers are protected in the event prices drop below their break-even point.

    How do You Make Money at a Commodity Broker?

    Much like any other investment class, you make money when you sell an asset for more than you paid. If you’re short-selling the commodity, then you make money you close the trade for less than you opened it at.

    It is important to remember that unlike stocks and bonds, commodities do not generate income. As such, without the presence of dividends you will only make money through capital gains.

    Below we have listed a couple of examples of what a successful commodity trade might look like.

    🥇 Going Long on Oil

    If you were to go long on an asset, this means that you think the value of the commodity will increase in the open marketplace. As such, you would need to place a ‘buy’ order.

    1. You think that the price of oil will increase over the coming days
    2. It is currently priced at $30 per barrel
    3. You place a £500 buy order
    4. With tensions in the Middle East on the rise, the price of oil increases to $45 per barrel
    5. This represents an increase of 50%
    6. You want to lock in your profits, so you place a sell order.
    7. At a stake of £500, you made £250 in gains (£500 x 50%)

    🥇 Going Short on Gold

    If you were to go short on an asset, this means that you think the value of the commodity will decrease in the open marketplace. As such, you would need to place a ‘sell’ order.

    1. You think that the price of gold is overvalued, so you’re confident it will lose value in the coming days
    2. It is currently priced as $1,612 per Ounze
    3. You place a £1,000 sell order
    4. A few days later the price of gold goes down to $1,209 per Ounze
    5. This represents a decline of 20%
    6. You want to lock in your profits so you place a buy order
    7. At a stake of £1,000, you made £200 in gains (£1,000 x 20%)

    Commodity Broker Fees and Commissions

    In the above examples, we did not factor in the fees that you will need to pay to trade at an online commodity broker. After all, brokers are in the business of making money.

    The fees that you pay will depend on a range of factors, such as the broker you have signed up with, the specific asset you class you wish to trade, and the account type you are on.

    Nevertheless, below we have listed some of the most common fees that commodity brokers charge.

    The Spread

    Regardless of which commodity broker you sign up with, you will need to pay a fee in the form of the spread. This is the difference between the ‘buy’ price of a commodity, with that of the ‘sell’ price. Not only does the spread put you at a instant disadvantage, but it ensures that the commodity brokers always makes money.

    Here’s a quick example of how the spread works.

    • You want to trade oil
    • The buy price of oil is $30
    • The sell price of oil is $31
    • The difference between the two prices is 1
    • This means that the spread is 1

    Once you place an order, you will need to make gains equal to the spread just to break even. To clarify – and sticking with the same example as above, if you purchased oil at $30 and then sold it straightaway at $31, you would be making a loss of $1 for every $30 that you traded.

    Trading Commissions

    Some, but not all, commodity brokers will charge you a trading commission. This is charged on top of the spread. If the broker does charge a commission, you’ll pay it in the form of a percentage against the value of your order. Moreover, you’ll pay it at both ends of the trade (buy and sell orders).

    For example:

    • The commodity broker charges a 0.5% commission
    • You want to place a £500 buy order on silver
    • This amounts to a commission of £2.50
    • The price of silver increases, so your order is now worth £600
    • You decide to place a sell order to lock in your profits
    • You will pay a 0.5% on the £600 sell order, which amounts to £3

    CFDs and Commodities

    As we have noted throughout our guide thus far, you will not own the underlying asset when you trade commodities. This makes sense, as it would be virtually impossible for you to personally store and distribute thousands of barrels of oil in the real-world. As such, you will be investing in commodities via a CFD (contract-for-difference).

    In a nutshell, CFDs allow you to buy and sell thousands of financial instruments without you owning or storing the asset. This not only includes commodities like gold and oil, but heaps of other assets such as stocks, bonds, indices, and cryptocurrencies.

    Opting for commodities in the form of CFDs come with a range of benefits, such as:

    • You can go long or short on your chosen commodity
    • You can apply leverage to amplify your trades
    • You can trade virtually any asset class that has a market
    • You will often benefit from commission-free trades
    • Spreads and other fees are super-low as CFDs merely track market prices
    • You can trade fractional amounts as you do not need to invest in a full asset

    Payments at Commodity Brokers

    When it comes to getting money in and out of a commodity broker, platforms typically offer heaps of everyday payment methods. The specific methods offered will vary from broker-to-broker.

    With that said, you’ll typically get to choose from at least one of the following:

    🥇 Visa

    🥇 MasterCard

    🥇 Maestro

    🥇 Paypal

    🥇 Skrill

    🥇 Neteller

    🥇 Local Bank Transfer

    🥇 International Wire

    You also need to keep an eye out for account minimums and deposit/withdrawal fees. Regarding the former, commodity brokers usually ask you to meet a minimum deposit amount. This averages £50-£100, although it can be more.

    When it comes to deposit and withdrawal fees, this will vary depending on the payment method and the broker itself. With that said, most of the commodity brokers that we recommend on this page allow you to deposit and withdraw funds for free.

    Leverage at Commodity Brokers

    As we briefly covered earlier, commodity brokers allow you to buy and sell assets on leverage. For those unaware, this means that you can amplify your trade size and thus – invest more than you actually have in your brokerage account.

    On the one hand, this has the potential to increase your profits when trades go your way. On the other hand, leverage can just as easily amplify your losses, so it’s important that you have a firm understanding of the risks.

    Here’s an example of what a successful leverage trade might look like at a commodity broker.

    1. You are confident that the price of wheat will increase
    2. It is currently priced at £150 per tonne
    3. You only have £200 in your trading account, but wish to invest more
    4. As such, you apply leverage of 10x, taking your trade size to £2,000
    5. A few days later, the price of wheat increases to £300 per tonne
    6. This represents an increase of 100%

    Ordinarily, an increase of 100% on a £200 trade would yield a total profit of £200. However, as you applied leverage at 10x, your profit was amplified to £2,000.

    With that being said, you can just as easily lose money when you apply leverage – and fast. Crucially, in order to apply leverage, you are required to put up a deposit, which is known as the ‘margin’. Depending on how much leverage you apply, you stand the chance of losing your entire margin if your commodity trade goes against you.

    For example:

    • Leverage of 10x requires a margin of 10%. If your trade goes against you by 10% or more, your trade will be ‘liquidated’. This means that the commodity broker keeps your margin.
    • Leverage of 50x requires a margin of just 2%. Again, if your trade goes against you by 2% or more, you’ll lose your margin.

    As you can see from the above, the higher the margin, the more chance you have of having your trade liquidated.

    How to use a Commodity Broker: Step-by-Step Guide

    If you’ve read our guide up to this point, you should now have a firm grasp of what commodity brokers are, how they work, and what assets you can buy and sell. As such, we are now going to show you how you can get started with a commodity brokerage account today.

    Step 1: Choose a Commodity Broker

    First and foremost, you need to choose a commodity broker that meets your trading requirements. The easiest way to do this is to review the five brokers that we list at the bottom of this page.

    Each broker has been pre-vetted, and by listing its good and bad points, you can make an informed decision as to whether or not the platform is right for you.

    If you want to research a commodity broker yourself, then we would suggest reviewing the section listed further down on this page. We explain the many factors that you need to consider, such as regulation, spreads, fees, tradable assets and more.

    Step 2: Open an Account and Verify Your Identity

    Head over to the homepage of your chosen commodity broker and elect to open an account. You’ll need to provide a range of personal information, such as your full name, home address, date of birth, nationality, and contact details.

    You will also be asked to verify your identity. It’s best to get this out of the way straight away so that you can proceed to deposit some funds. Simply upload a copy of your passport or driver’s license, as well as a proof of address.

    Step 3: Deposit Funds

    You will now need to deposit some funds so that you can trade commodities with real money. Most brokers allow you to deposit funds via a debit/credit card or bank wire. Some of the brokers listed on this page also allow you to use an e-wallet.

    Be sure to check minimum deposit amounts for your chosen payment method, as well as if any fees apply.

    Step 4: Select an Asset to Trade

    Now that you have a fully funded account, you can begin trading. Head over to the commodity section of your chosen CFD platform and search through the many financial instruments listed.

    If you’ve got a specific commodity in mind (like gold or sugar), simply search for it and click on the corresponding result.

    Step 5: Place Trade

    You will now need to place an order. This part of the process can appear intimidating if you’ve never placed a buy or sell order before, so be sure to review the following points.

    • Buy/Sell Order: Decide whether you think the commodity will go up (buy order) or down (sell order) in value
    • Stake: Decide how much you wish to stake (for example, £50)
    • Leverage: If you want to apply leverage to your trade, select the size of your multiplier (for example, 2x, 5x, etc.)
    • Market/Limit Order: If you want to specify an entry point, you’ll need to opt for a limit order. Select the market order option if you simply want to take the next available market price.
    • Stop-Loss Order: Although not compulsory, we would suggest setting up a stop-loss order. This will reduce your losses if a trade goes against you.

    Once you’ve filled out the above, you need to submit the order. In most cases, it should be executed within a matter of seconds.

    How to Choose a Commodity Broker?

    Before signing up with a commodity broker, we would suggest asking the following five questions.

    ✔️ Does the commodity broker hold a license with the likes of the FCA or CySEC?

    ✔️ Is your preferred payment option supported by the commodity broker?

    ✔️ Does the commodity broker offer competitive spreads and trading commissions?

    ✔️ How extensive is the broker’s list of supported commodity instruments?

    ✔️ Does the broker allow you to apply leverage your commodity trades?

    Top 5 Commodity Brokers – Which Broker is Best?

    Don’t have time to research a broker yourself? Check out our top 5 commodity brokers listed below.

     

    1. AVATrade – 2 x $200 Forex Welcome Bonuses

    The team at AVATrade are now offering a huge 20% forex bonus of up to $10,000. This means that you will need to deposit $50,000 to get the maximum bonus allocation. Take note, you'll need to deposit a minimum of $100 to get the bonus, and your account needs to be verified before the funds are credited. In terms of withdrawing the bonus out, you'll get $1 for every 0.1 lot that you trade.

    Our Rating

    • 20% welcome bonus of upto $10,000
    • Minimum deposit $100
    • Verify your account before the bonus is credited
    75% of retail investors lose money when trading CFDs with this provider

     

    2. Capital.com – Zero Commissions and Ultra-Low Spreads

    Capital.com is an FCA-regulated online broker that offers heaps of financial instruments. All in the form of CFDs - this covers stocks, indices, commodities, and even cryptocurrencies. You will not pay a single penny in commission, and spreads are super-tight. Leverage facilities are also on offer - fully in-line with ESMA limits.

    Once again, this stands at 1:30 on majors and 1:20 on minors and exotics. If you are based outside of Europe or you are deemed to be a professional client, you will get even higher limits. Getting money into Capital.com is also a breeze - as the platform supports debit/credit cards, e-wallets, and bank account transfers. Best of all, you can get started with just 20 £/$.

    Our Rating

    • Zero commissions on all assets
    • Super-tight spreads
    • FCA regulated
    • Does not offer traditional share dealing

    82.61% of retail investors lose money when trading CFDs with this provider

     

     

    Conclusion

    We hope that you now have a firm understanding of how commodity brokers work. We’ve covered the ins and outs of how you make money, what assets are supported, and the many payments methods that you can use to fund your account. We’ve also discussed our top five commodity brokers of 2021.

    Each broker comes with a stand-out selling point, such as low spreads, high leverage limits,  heaps of regulatory licenses, or top-notch research tools. Ultimately, the commodity broker that you sign up with needs to meet your long-term trading goals, so be to sure to choose wisely.

     

    Eightcap - Regulated Platform With Tight Spreads

    Our Rating

    • Minimum deposit of just $250
    • 100% commission-free platform with tight spreads
    • Fee-free payments via debit/credit cards and e-wallets
    • Thousands of CFD markets including Forex, Shares, Commodities, and Cryptocurrencies
    Start your journey towards reaching all your financial goals right here.

     

     

    FAQs

    What is a commodity broker?

    Commodity brokers allow you to buy and sell real-world assets from the comfort of your home. The assets are represented in the form of CFDs

    What is the minimum deposit at a commodity broker?

    This depends on the commodity broker that you sign up with, as well as the specific account type that you opt for. This usually averages £50-£100.

    What fees do commodity brokers charge?

    You'll be charged via the spread, which is the difference between the buy and sell price of your chosen commodity. Some brokers also charge trading commissions, so keep an eye out for this.

    Are commodity brokers regulated?

    Most commodity brokers hold at least one regulatory license. Issuers include the likes of the FCA, ASIC, and CySEC.

    What payment methods do commodity brokers support?

    Most commodity brokers allow you to fund your account with a debit/credit card or bank account. Some support e-wallets like Paypal.

    Do commodity brokers allow you to apply leverage?

    Yes, most commodity brokers allow you to apply leverage when you trade. While some brokers limit this to 30:1, others go as high as 500:1. Tread with caution.

    Do I own the asset when I trade commodities online?

    If you want to trade commodities online, you will be doing so via a CFD. As such, you do not own the underlying asset.