Commodities

What is a Commodity?

Commodities are raw materials considered as basic goods of the global economy.

There are two types of commodities: the hard ones such as oil, gold, and silver, and the others that are considered soft commodities such as wheat, corn, and sugar.

Commodities are traded on numerous exchanges under the same standards and grades using future contracts. 

For example, one future contract of wheat contains 5,000 bushels of wheat whether it is listed on Chicago Mercantile Exchange or New York Mercantile Exchange under the same quality.

A future contract is when the seller and buyer agree on exchanging an asset at a predetermined price and date in the future. 

Most commodities are priced in the US Dollar, so because of this, the US dollar impacts the prices of these commodities. 

How can they be traded?

As mentioned above they are traded using future contracts, but also an investor can invest in commodities using commodity options, commodity ETFs, and through CFDs on commodities.