What Do Commodities and Commodity Futures Mean?

The commodity markets are the oldest markets, representing basic human needs like food, energy, and building materials. Some have been traded since ancient times, like grains, gold, and livestock.

Today, commodities are traded on both the spot and futures markets. Spot trading is for immediate delivery—you pay for a certain amount of corn and you receive that corn.

 

 
 

 

What's a commodity futures contract?

Futures contracts are contracts for delayed delivery of a product at some future time. For example, a farmer might agree in January to deliver their September corn harvest to a cereal maker at a fixed price.

The first established futures market was the Dojima Rice Exchange in Japan, with similar unofficial markets emerging in England around the same time. Those Japanese rice traders also invented the popular candlestick chart style (available on the Nadex platform).

Commodity markets arose in England and Holland in the 1500s, but similar markets, with contracts featuring precise amounts and time of delivery, go back to ancient civilizations in Mesopotamia, the Indus Valley, China, and the Americas. The first modern futures and options exchange was the Chicago Board of Trade (just a block down the street from Nadex!) in 1868, offering trade in grains and livestock.

Futures contracts have evolved to become financial instruments in themselves. Most futures traders buy and sell them without ever actually receiving the actual commodity. Some traders indirectly trade commodities by trading stocks or ETFs of companies involved in agriculture or mining. You can also trade futures on markets other than commodities, like stock indices

What are some commodities people can trade?

Commodities are classified as either hard or soft. Soft commodities include coffee, sugar, cocoa, soybeans and even livestock—things that are grown.  Hard commodities are those which are mined or extracted from the earth, such as gold, silver and oil.

Nadex offers binary options and spreads based on these commodity futures contracts:

  • Agriculture: corn, soybeans
  • Metals: gold, silver, copper
  • Energy: crude oil, natural gas

On Nadex, there is no physical delivery on any of the products because you are not trading the commodities themselves, but a derivative based on the price of the commodity. In other words, we’re never going to send a truckload of soybeans to your home. All trades are cash settled. So when your binary option or spread expires, or you exit the trade, you’ll receive your payout or settlement in US dollars.

See all glossary trading terms

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z