Module 1: How commodity trading works · Lesson 1 of 9

Spot, futures and CFDs on commodities

3 min read

Most retail traders access gold and oil through CFDs, which let you speculate on price movements without ever owning or receiving the physical commodity. Spot and futures markets exist alongside them and often set the prices that CFDs follow.

Three ways to get price exposure

Spot means a deal for (near) immediate settlement at today's price. Gold is widely quoted on a spot basis, for example as XAU/USD, which is the price of one troy ounce of gold in US dollars.

Futures are standardised contracts, traded on an exchange, to buy or sell a set quantity of a commodity at an agreed price on a future date. Many oil prices you see quoted come from futures markets. Professional traders usually close or roll futures before expiry so they never take delivery of anything.

CFDs, short for contracts for difference, are agreements with a broker to exchange the difference in a price between the moment you open a position and the moment you close it. A CFD may track a spot price or a futures price, depending on the product.

Why CFDs are popular

No physical delivery. Nobody ships you a barrel of crude or a gold bar. The trade is settled in cash.
Go long or short. You can profit if the price rises (long) or falls (short), and you can lose in either case too.
Flexible size. You can trade fractions of a lot rather than a full exchange contract.
Leverage. You put down margin, a deposit that is a fraction of the full position value.

Example: Suppose you buy a gold CFD at 2,000 and close it at 2,015. The broker pays you the 15-dollar difference multiplied by your position size. If the price had fallen to 1,985 instead, you would pay the 15-dollar difference.

The trade-offs

CFDs come with costs: the spread (the gap between buy and sell prices), sometimes a commission, and overnight financing if you hold positions past the daily cut-off. You also rely on the broker as your counterparty, so choosing a well-regulated firm matters.

Risk: Leverage magnifies both gains and losses. A small move against a large position can wipe out your margin quickly.

Key takeaways

Spot is for near-immediate settlement; futures are exchange contracts for a future date.
A CFD is a contract for difference that settles in cash, with no physical delivery.
CFDs let you go long or short with flexible sizes and leverage.
Spreads, commissions and financing are the main costs to understand.

Create a free account to save your progress, take the module quiz and earn a certificate.

Educational content only — not investment advice. Leveraged trading carries a high risk of loss.