Commodity Trading Glossary
Plain-English definitions of the terms you'll see across RetailVest — written for people new to commodities, not pros.
- Backtest
- Testing a trading rule on historical data to see how it would have performed. Describes the past — not a promise about the future.
- Backwardation
- The opposite of contango — later futures are cheaper than near ones. Usually a sign of tight near-term supply, and a tailwind for holders.
- Carry / term structure
- The gain or drag from a market's futures curve shape. Backwardation pays you to hold; contango costs you.
- Commercials (hedgers)
- Companies that produce or use the commodity (miners, oil firms, farmers) hedging real business risk — often called the 'smart money.'They tend to buy weakness and sell strength, so extreme commercial positioning can be an early contrarian tell.
- Contango
- When future-dated futures cost more than near-dated ones. Holding futures-based ETFs in contango slowly bleeds value as they 'roll.'Common in oil and natural gas — a reason USO/UNG can lag the spot price over time.
- COT (Commitments of Traders)
- A free weekly U.S. government report showing who holds futures positions in each market — big hedgers vs. speculators.Published every Friday by the CFTC, based on Tuesday's positions. It's the main way to see what large traders are doing.
- ETF proxy
- An ETF that tracks a commodity so you can trade it in a normal brokerage account without a futures account (e.g. GLD for gold).
- Futures
- Contracts to buy or sell a commodity at a set price on a future date. The primary way commodities are traded — but they need a margin account.
- Implied volatility (IV)
- How big a move the options market is pricing in. High IV = the market expects large swings (and options are expensive).
- Managed money (speculators)
- Hedge funds and large speculators betting on price direction — often the 'trend chasers.'When they pile all-in on one side, the move is sometimes close to exhausting itself.
- Market regime
- The prevailing macro backdrop (e.g. risk-on vs. risk-off), read from volatility, momentum, and yields. It sets which trades tend to work.
- Max drawdown
- The worst peak-to-trough drop a strategy suffered. A plain measure of how much pain you'd have had to sit through.
- Mean reversion
- The idea that stretched prices tend to snap back toward their average — buying oversold, fading overbought.
- Net position
- Longs minus shorts for a group of traders. Positive = net betting on higher prices; negative = net betting on lower.
- Open interest
- The total number of futures contracts currently open (not yet closed). A gauge of how much money is committed to a market.
- Percentile
- Where a value ranks in its own history. 90th percentile means higher than 90% of past readings.
- Put/call ratio
- Put option volume divided by call volume. Above 1 means more downside bets than upside — a rough fear/positioning gauge.
- Z-score
- How unusual today's positioning is versus the last ~3 years. Around 0 is normal; beyond +2 or −2 is a genuine extreme.It matters more than the raw number because it puts positioning in historical context.
New to all of this? Start with the beginner's guide, or see live CFTC positioning.