Introduction to Commodity Trading: How to Select Investment Targets from Numerous Varieties?

When it comes to global investments, many people first think of stocks and bonds, but in fact, commodity trading has long become an essential allocation for institutions and professional investors. Why is it worth paying attention to? Simply put, because commodity prices directly reflect the health of the global economy, with supply and demand changes being transparent and traceable.

Core Asset Categories in Commodity Trading

Commodity trading covers a wide range of assets, mainly divided into six categories: Energy (crude oil, natural gas, electricity), Industrial Metals (copper, aluminum, lead, zinc, iron ore), Precious Metals (gold, silver, palladium, platinum), Agricultural Products (soybeans, corn, wheat), Soft Commodities (sugar, cotton, coffee), and Livestock (pork, beef).

Among these, crude oil is considered the “king” of commodities. Why? Because its downstream applications are ubiquitous—plastic food packaging, textiles and clothing, building materials, gasoline transportation—covering almost all aspects of daily life. The supply and demand are enormous, and liquidity is the best.

In comparison, although precious metals are expensive, their resistance to corrosion and ease of storage give them value preservation and hedging functions, making them suitable for long-term holders.

How to Select Worthwhile Commodity Trading Assets

Not all commodities are suitable for ordinary investors. Power futures are a typical example—they have large supply and demand, but are severely limited by regional restrictions, and prices cannot be unified globally, so their investment value is limited.

What kind of commodity trading assets are worth getting into? The key lies in six dimensions:

Liquidity and Price Discovery: Must involve massive capital participation to ensure prices are not manipulated. Crude oil, copper, gold, and others meet this criterion.

Global Price Uniformity: Listed on major exchanges worldwide, allowing investors to buy and sell freely at global market prices without regional restrictions.

Ease of Storage and Transportation: Metals and grains are relatively stable and less affected by climate.

Standardized Quality: Regardless of origin, product specifications and quality are strictly controlled to avoid risks from quality differences.

Stable and Broad Demand: Long-term global demand is certain—for example, oil is used worldwide, and wheat and soybeans are fundamental food staples globally.

Fundamental Analysis Ease: Sufficient public information enables investors to judge price trends based on economic logic, improving decision-making success rates.

Based on these standards, crude oil, copper, aluminum, gold, silver, soybeans, corn, sugar, and cotton are the most worth paying attention to in commodity trading.

Practical Investment Methods in Commodity Trading

For beginners, commodity trading is mainly realized through two tools: futures and options. Among them, futures are the most basic choice.

Each futures contract corresponds to a specific underlying—such as crude oil futures representing investment in crude oil. But note that futures have expiration dates, and investors need to predict the spot price at the expiration month and make corresponding buy or sell decisions.

The key to successful commodity trading lies in a dual approach:

Fundamental Research is the foundation. Macroeconomic cycles, industry supply and demand changes—these factors determine the future direction and magnitude of prices. During the 2020 pandemic, global central bank quantitative easing led to a “money surplus” phenomenon, causing commodity prices to rise across the board—an classic example driven by fundamentals.

Technical Analysis is for confirmation. Using charts and indicators to precisely grasp entry points and control risks. However, technical analysis alone cannot tell you how long the trend will last or how big the rally will be, so it must be combined with fundamental guidance.

The combination of fundamental and technical analysis is the way to go—both are indispensable.

Conclusion

Commodity trading is an important asset allocation alongside stocks and bonds. Essentially, participating in commodity trading is about re-pricing the global industrial chain. From an investment perspective, combining fundamental and technical judgments and engaging in liquidity-rich, globally priced, fundamental-driven assets like crude oil, copper, aluminum, gold, silver, soybeans, corn, sugar, and cotton is the prudent path for stable commodity trading.