A commodity futures contract is an agreement to buy or sell a particular commodity at a future date. The price and the amount of the commodity are fixed at the time of the agreement. Most contracts contemplate that the agreement will be fulfilled by actual delivery of the commodity.

Investors can trade commodity-based futures, stocks, ETFs, or mutual funds, or they can hold physical commodities such as gold bullion. Three of the most commonly traded commodities include oil, gold, and base metals.

Unlike stock trading or investing in mutual funds or ETFs, commodity trading offers tremendous leverage. In trading commodity futures, you typically only have to put up about 10% of the total contract value. This enables you to make much higher percentage gains with your trading capital.