Adding different asset classes to your portfolio, such as commodities, can help to diversify it. At DEGIRO, you can indirectly invest in many types of commodities, from wheat to gold.Open an account
Most physical products (tangible products that you can actually touch) are made with commodities. For example, most plastics are made with oil, and a telephone contains all sorts of metals. Raw material commodities such as oil, gas and metals are often used during the production process of goods.
Raw material prices partly determine the selling price of goods. If the price of raw materials goes up, you will probably pay more for the end product. As a result, raw materials often drive (price) inflation. For example, when the price when oil is scarce, the oil price goes up and many products become more expensive. And oil is essential in many production processes and for the transport of products.
When investing in commodities, people often think of trading in oil and gold, but there are many more commodities you can invest in. We’ve divided commodities into several categories.
Grain, potatoes, soy, coffee and cotton
Cattle and pigs
Wood and pulp
Gold, platinum and palladium
Salt and sand
Oil, coal and natural gas
We offer investing in a variety of different commodities on our platform. But what is the best choice for you? To get you started in the world of raw materials, we have listed a few categories. Click on them to learn more and discover the most popular raw materials within each category!
Few people are excited about putting a few oil barrels in their backyard or shed. In theory, of course, you could do that. When the price of oil is low, you buy the barrels. When the price of oil goes up, you sell them. Fortunately, several investment options allow you to invest in commodities without requiring you to physically own them.
Exchange-traded funds (ETFs) allow you to diversify your investment in commodities. The degree of diversification does depend on the type of ETF you buy. There are commodity ETFs that focus on a single commodity and ETFs that track a wide range of commodities or commodity-related companies.
Because commodity trading is complex, and because price fluctuations are difficult to predict, it is wise to consider an ETF that is broadly diversified. Because of the spread, fluctuations in individual commodity prices have less impact on the price of the overall commodity ETF. This way, you won't see your investment go down immediately if one commodity price drops.
You can also invest in stocks of companies that extract and sell commodities. If commodity prices are high and selling them generates high returns, the turnover of such a company often goes up. Of course, it is still important to look at the financial situation of a company in advance. High income from raw material sales does not necessarily mean a positive net operating result.
Low raw material prices, on the other hand, can also have a positive effect on the profitability of many companies. Consider companies that use a lot of a particular raw material during the production process. If the cost of purchasing raw materials falls, the company's expenses also decrease. At the end of line, this can have a positive effect on the company's profit margin.
A commodity future is a contract to deliver a commodity at an agreed time in the future at an agreed price. You do not own the commodity itself. Futures are complex investment products and therefore not always suitable for beginning investors. When you enter into a futures contract, you are speculating on a rise or fall in the price of the commodity. Because these fluctuations are often difficult to predict, we recommend that you fully understand the risks involved before investing in futures.
Commodities cannot go bankrupt
Although the price of commodities can fluctuate considerably up and down on the supply and demand side, unlike a company, a commodity cannot go bankrupt. Commodity prices can drop significantly, but there will always be a certain demand for the commodity.
Raw materials are scarce
As long as the world economy continues to grow, the demand for raw materials will also continue to grow. In addition, some raw materials (for example oil, lithium or gold) are limited resources, meaning there is only a certain amount available on our planet. These raw materials cannot be replenished. In general, scarcity drives up commodity prices.
Diversifying your portfolio
By diversifying your investments, you protect yourself against the risk of losing money. Certain commodities, such as gold and silver, often do well in periods of (high) inflation. It can therefore be wise to mix some commodities into your portfolio with investment products in commodities.
No dividend payout
With stocks and bonds, interest and dividends are paid. However, when you buy a gold bar, for example, you do not receive any dividends or interest in return. Keep in mind that you miss out on this kind of return when investing in commodities.
The course of commodity prices is often difficult to predict. The prices of some commodities react strongly to regional or global events. Take a good look at the market of a commodity to understand the players operating within the market. In this way, you can try to estimate the supply and demand levels and the price associated with a commodity. Keep in mind that unexpected events can completely shift commodity prices. Think of a pandemic, war or the emergence of new technology that may increase or decrease the demand for certain commodities.
At DEGIRO, you have several options for investing in commodities. We have a wide range of commodity-related stocks and ETFs. You will also find these investment products in our ETF Core Selection. This means that you do not pay any transaction costs for them. Currency, external product and spread costs may apply. See the ETF Core Selection, conditions and Fair Use Policy here.
You can also trade commodities using futures, leveraged products and warrants. Because these are complex investment products, you must first take an appropriateness test to show that you understand these investment products. We advise you to only invest in financial products that match your knowledge and experience.
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Investing involves risks. You can lose (a part of) your invested funds. We advise you to only invest in financial products which match your knowledge and experience. This is not investment advice.
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If you activate your DEGIRO investment account before the 1st of July 2023, DEGIRO will reimburse your transaction fees up to €100. The following conditions apply to this offer:
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Participation in the offer is open to all clients who have activated an account at DEGIRO on or before the 30th of June 2023.