Commodity cfd
Family I · Instruments
Not to be confused with cfd, cfd trading, cfd analysis.
Commodity CFD means a contract for difference where the underlying reference asset is a physical commodity — energy, metals or agricultural products — rather than a share, index or currency pair. The position is opened and closed at a price derived from that commodity, and the difference is settled in cash. No physical barrel, ounce or bushel changes hands at any point.
How the reference price is formed
A commodity CFD tracks a price that originates in a futures or spot market. Most retail contracts reference the front-month futures price of the commodity, adjusted for the provider's own spread and financing. Because the underlying futures contract expires, the reference rolls to the next contract on a schedule, and the account is debited or credited for the price gap between the two contracts.
Two features follow from this structure:
- The quoted price is the provider's price, not an exchange price, so it can differ from the screen price of the futures contract.
- Rollover adjustments, financing charges and holding costs vary by provider, by commodity and by jurisdiction, and are set out in the provider's contract specifications rather than by any single market-wide rule.
Worked example
A long position in a crude oil CFD, with the price quoted in the provider's contract currency per unit.
The gross figure ignores the costs that accrue while the position is open; the net figure is what the account reflects after those costs.
What moves the price
Commodity prices respond to supply and demand conditions specific to each market: inventories, production and transport disruptions, weather for agricultural contracts, and macroeconomic factors such as interest rates and the strength of the currency in which the commodity is quoted. Many commodity markets trade nearly continuously across sessions, so gaps between the close and the next open are common. Leverage magnifies both directions of the resulting move, and a position can lose more than the margin committed to it.
Often confused with
- cfd
- A CFD is the general contract type, defined by cash settlement of the difference in a reference price, whereas a commodity CFD names a physical commodity as that reference; the visible sign is the underlying named in the contract specification.
- cfd trading
- CFD trading is the activity of buying and selling these contracts, while a commodity CFD is the instrument itself; the visible sign is whether the text describes an action or names a product.
- cfd analysis
- CFD analysis is the study of price behaviour and position data, whereas a commodity CFD is the position being studied; the visible sign is whether the subject is a method of examination or a tradeable contract.