What Are Commodities?

What Are Commodities?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

Commodities refer to a basic good used in commerce that are interchangeable with other commodities of the same type. These goods are usually natural resources that are directly involved in the economy’s production. Examples of commodities include gold, oil, grains like wheat or corn, and natural gas.

Related Questions

1. What are the types of commodities?

There are four main types of commodities: agricultural (e.g., corn, soybeans, wheat), energy (e.g., oil, natural gas), metals (e.g., gold, silver, platinum), and livestock and meat (e.g., cattle, pork).

2. How does commodity trading work?

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Commodity trading works through futures contracts. These are legal agreements to buy or sell a particular commodity at a predetermined price, quantity, and future date. Traders buy and sell these contracts in commodity markets like the New York Mercantile Exchange.

3. Are commodities a good investment?

The suitability of commodities as an investment varies with individual financial goals and risk tolerance. Commodities can diversify a portfolio and potentially offer substantial returns. However, they also come with potential risks and high volatility, which might not suitable for conservative investors.

4. What factors affect commodity prices?

Commodity prices are influenced by various factors such as supply and demand, geopolitical events, weather conditions (particularly for agricultural commodities), currency strength, and economic health.

5. What is the role of commodities in the economy?

Commodities play a crucial role in the economy. They serve as raw materials for production, influencing the price of goods and services. Moreover, commodities can affect inflation rates, fiscal policies, and trade balances, thereby impacting the overall economic scenario.