A commodity is a basic good used in commerce that is interchangeable with other similar goods. Commodities are typically raw materials or agricultural products that are traded on an exchange. Some examples of commodities include oil, natural gas, gold, silver, and wheat.
Investors typically trade commodities through futures contracts. A futures contract is an agreement to buy or sell a commodity at a set price on a specific date in the future. Futures contracts are traded on commodity exchanges, such as the Chicago Mercantile Exchange (CME).
Commodities can be a volatile asset class, as prices can be influenced by a variety of factors, including weather, geopolitics, and economic data. However, commodities can also offer diversification benefits to a portfolio, as they often move differently than other asset classes, such as stocks and bonds.
If you’re thinking of adding commodities to your portfolio, it’s important to understand how they work and the risks involved. This guide will provide an overview of commodities and how they can be used in investing.
Commodities Guides
Commodity Prices
Commodity Prices Today
What a Commodity Is and How Its Trading Market Works
Commodities are actually challenging assets ranging of wheat to gold to engine oil. The U.S. federal government describes commodities within the 1936 Commodity Exchange Act. The Act addresses trading in natural and agricultural resource commodities. While the Act treats financial products as commodities, it does not think about these to be commodities. The Act additionally bans swap of onions as a commodity
Kinds of Commodities
Since there are plenty of commodities, they’re grouped into 3 main categories: metals, energy, and agriculture.
Agriculture
Issues you drink, like sugar, coffee, cocoa, as well as orange juice. These’re known as the softs marketplaces.
Cereals, like wheat, oats, rice, soybean oil, soybeans, as well as corn.
Animals which become food, like living cattle as well as pork (called lean hogs).
Items you would not eat, like lumber as well as cotton.
Energy
The energy category consists of heating oil, natural gas, RBOB gasoline, and crude oil . Commodities trading is a huge determinant in setting oil costs.
Metals
Metals embrace mined commodities, like gold, silver, copper, and platinum. The London Metal Exchange announced it will release futures contracts for metals utilized around batteries.3 The exchange expects there’ll be a big market for this kind of metals as the need increases for electric vehicles.