What Are Commodities? An Overview

Physical supply prices differently from a cash flow

An equity is priced off expectations about future earnings. A commodity is priced off how much of the physical material exists now against how much is wanted now, plus the cost of storing it until later. Three consequences follow that a currency trader will not recognise.

Supply responds slowly. A copper mine takes the better part of a decade from discovery to first metal, so when demand jumps the price has to do all of the adjusting. Storage is finite and it costs money, which is why the forward curve carries information and why a full storage system can send prices somewhere no model expected. And a meaningful part of the order flow comes from producers and consumers hedging real exposure rather than from anyone expressing a view, so positioning data reads differently here than in a purely speculative market.

The failure modes a currency trader has not met

• Contract roll. Continuous charts stitch expiring contracts together, so a level drawn last month can be several dollars away from where price actually traded on the contract you hold.
• Limit moves. Several agricultural markets lock at a set distance from the previous settlement. Trading does not stop, but nothing may print beyond that price, so if you are on the wrong side there is no exit at any level you would accept until the next session.
• Scheduled inventory data. Crude and natural gas both have a weekly government report that routinely moves price more than any technical level on the chart. The time is published years in advance, so being caught by it is a planning failure.
• Curve drag. A rolling position can lose money over a year while the spot price is unchanged, purely from the shape of the futures curve.

A first month spent watching rather than trading

Pick two markets, not eight. Gold and crude are the usual pair because they are liquid, they have tight spreads at retail size, and their drivers are different enough that you learn two things rather than one twice.

For each, write down the contract size, the tick value, the daily average true range in currency terms, the exact time of its weekly data release, and the hours when the spread is tightest. That page of notes is worth more than any indicator. Then size a hypothetical trade at 1% of your account and look at how small the position is in contract terms. For most accounts under 25,000 USD the honest answer is that the standard contract is too large and the exposure has to come from a fractional CFD, which brings its own overnight financing cost. The risk management guide covers what that percentage should be and why the arithmetic makes it non-negotiable.

Commodities reward people who know what they are holding. Most of that knowledge is arithmetic done before the trade rather than analysis done during it.