Best Commodity Trading Forex Brokers for 2024

Who are Commodity Forex Brokers?

These are forex brokers that offer Contracts for Difference (CFDs) on the various commodities that are either grown (agricultural commodities) or extracted from the ground (metals and energy commodities). Commodities serve as raw materials in many industries and that is what makes them highly valuable. Imagine a world without crude oil, staple crops like corn, cocoa or coffee, or even a world where there is no single piece of gold jewelry: that would be hard to imagine.

Unlike stock CFDs which feature assets that are listed across national exchanges and therefore differ from one country to another, commodity assets are the same everywhere. So whether they are listed in exchanges in London, Hong Kong or New York, the commodity assets are the same and will bear nearly similar pricing across exchanges. Once more, a question that may arise is whether there is any difference between the commodities listed on the platforms of commodity forex brokers and the commodities which are listed on their parent exchanges? Yes, differences do exist and some of them are presented below:

• The commodity CFDs traded on the platforms of commodity forex brokers are actually contracts that mirror the price movements of the underlying commodity assets in their respective exchanges.
• No commodities are exchanged or owned by the trader when trading commodity CFDs. In conventional futures exchanges, trades involve actual delivery of the commodity assets from one trader to another.
• The dealing entities for commodity CFDs are the trader and the broker/dealer, with the dealer acting as the counterparty to the trader's positions. In commodity futures trading, there has to be a buyer and a seller for a physical exchange of the commodity to take place. So the brokers do not necessarily have to be the counterparty to the trades.
• Commodity CFDs are traded using leverage.

Contract Specifications for Trading Commodities on Forex Broker Platforms

Commodity CFDs are unique in the sense that the assets being tracked by the CFD contracts are traded on various commodity exchanges around the world. Commodities have unique contract specifications which are discussed below.

A) Leverage

In 2018, the European Securities and Markets Authority (ESMA) reduced the leverage limit for trading of all assets on UK and EU forex brokerages. This effectively reduced the leverage cap for trading commodities on EU and UK platforms to 1:10. This leverage provision translates into a margin requirement of 10%. What this means is that if a trader buys 100 units of a commodity CFD on a forex platform located in the UK or EU, and this trade costs $10,000 to execute, the trader is expected to come up with a margin of $1,000 as collateral for the trade.

However, offshore brokers continue to offer high leverage for trading. The offshore commodity forex brokers listed on our website offer various leverage amounts and it is still possible to see commodities traded with leverage as high as 1:500. If the trader intends to purchase a commodity CFD contract that costs $10,000 to execute on an offshore platform using a leverage of 1:500 (i.e. 0.2% margin), then the trader would only need $20 to execute the trade.

B) Spreads

Commodity CFDs tend to have varying spreads for each asset, and the spreads change as you move from one broker to the other. Therefore, traders need to be aware of the cost implications of trading certain CFDs on commodities. Your trading style will also dictate whether you should aim to cut your spreads to a barest minimum. For instance, high volume traders or scalpers will benefit hugely from reduction in spreads in the long run. There is already an article on this site which explained how much a trader can save over a year by using progressive brokers that can offer reduced spreads.

C) Exchanges Covered

Unlike stock CFDs where each national exchange carries stocks that are unique to the country where such an exchange is found, commodities are the same all over the world. Therefore, the exchange that a commodity is listed really does not make much of a difference in pricing or timing.

D) Trading Hours

Commodities are typically traded round-the-clock, except for specific break periods which occur within the trading hours from Monday to Friday. These break periods coincide with when the open outcry pits are shutting down and when the electronic platforms on the futures exchanges kick in. Furthermore, the break periods will differ as you move from one commodity class to another.

E) Commodity CFD Expiration Dates

Another unique feature of commodities is that the futures contracts have expiration dates. Expirations could be weekly, monthly or quarterly. When these contracts expire, they are settled and rolled over to the next contract. When the settlement occurs, the differences in price between the expiring commodity futures contract (which is featured as CFD on a commodity broker platform), and the new/rolled over commodity futures contract, will either be credited to the trader's account as profit, or debited from the account as a loss. Therefore, the trader has the option of closing active positions on commodity CFDs before the rollover date, or allowing the platform to do this automatically. Traders will therefore be required to know when the commodity CFD they are trading is going to expire. This information is usually provided on the contract specifications page of each commodity forex broker.

F) Minimum Tick Size and Lot Size

The minimum tick size indicates the size in points of a single tick move in the price of the commodity CFD. Commodities have varying units of measurement and the size of 1 lot will differ as you move from one commodity to another. For instance, Markets.com features a Brent Oil Standard Lot as equivalent to 1,000 units, while a Standard Lot for cocoa is equivalent to 100 units. For natural gas, silver and sugar, the Standard Lot is 10,000 units. Again, your broker will provide you with these measurements in the contract specification table.

G) Rollover Fee

Rollover fees apply if a position on a commodity CFD is held open beyond the trading day in which the position became active. Traders who hold Islamic-compliant accounts are exempted from paying this fee.