Commodities are bought and sold on a number of exchanges specialising in a particular type of commodity.
The London International Financial Futures and Options Exchange is the largest trading floor for commodities in Europe
Soft commodities: cocoa, wheat, coffee, sugar, corn
The world's largest physical commodities futures exchange
Energy and metals: crude oil, natural gas, heating oil, RBOB unleaded gas, gold, silver, copper, platinum, palladium
The world's leading non-ferrous metals market
Metals that do not contain iron: aluminium, copper, tin, nickel, zinc, lead, aluminium alloy, cobalt
A leading global soft commodities futures and options exchange
Soft commodities: sugar, cotton, cocoa, coffee, orange juice
The world's oldest futures and options exchange
Grains: corn, soybeans, soybean oil, soybean meal wheat, oats, rough rice
Commodity futures are traded in contracts. Each commodity market has a standard size, set by the futures exchange where it trades. As commodities are often bought and sold in large amounts, the contract size also tends to be large.
Let's take gold as an example. The contract size for gold futures is 100 troy ounces. So if gold is trading at $1100 per troy ounce and you buy just one contract of it, your contract would be worth $110,000 (1100 x 100 ounces).
Small investors generally don't have access to such large amounts of money, so just like when trading forex, you can often trade commodity futures on leverage. Many exchanges and brokers also offer 'mini' contracts, which tend to be between 10% and 50% of the size of a standard contract.
It's very important to note that both standard and mini contract sizes vary widely depending on the type of commodity - so it's vital to check the contract size carefully before placing a trade.
As with all trading, the most important factor that affects commodity prices is the balance between supply and demand.
If, for example, there's a good cotton crop which boosts the amount in circulation - the price of cotton will decrease (assuming that demand remains the same). On the other hand, if clothes manufacturers and other companies using cotton need more of the commodity, but producers don't have the capacity to match this demand, the price will increase.
Other factors that drive commodity prices include:
Agricultural commodities are particularly dependent on the weather as it influences the harvest. A poor harvest will result in low supply, causing prices to rise.
Events such as war or political unrest can have a big effect on prices. For example, turbulence in the Middle East often causes the price of oil to fluctuate due to uncertainties on the supply side.
Commodities are normally priced in US dollars, so their prices generally move inversely to it. If the price of the dollar falls, it takes more dollars to buy the same amount of commodities - so the price of commodities rises. Conversely, if the dollar goes up then it's cheaper to buy commodities, all things being equal.