Next video:
Loading the player...

A commodity is a basic good used in commerce that is interchangeable with other commodities of the same type. Commonly traded commodities include gold, beef, oil, lumber and natural gas. Additional examples of commodities include iron ore, crude oil, salt, sugar, tea, coffee beans, copper, rice, wheat, silver, and platinum. 

Commodities are basic because they have simply been grown or extracted from their natural state and brought up to a minimum grade for sale in a marketplace - there is no extra value added to them by the producer. Although the quality may differ slightly between producers, commodities by definition are very similar no matter who produces them. All commodities of the same grade are priced equally, and are interchangeable.

The most widely traded commodities have well established markets. Investors buy and sell commodities through futures contracts on exchanges. The exchanges standardize the quantity and minimum quality of the commodity. For example, the Chicago Board of Trade stipulates that one wheat contract is comprised of 5,000 bushels. It also states what grades of wheat can be used to satisfy the contract. All wheat that meets that grade, no matter where it was grown, and despite slight variations in quality, will be sold for the same price.

 

Related Articles
  1. Investing

    All About Liquid Commodities

    You might hear 'liquid commodities' and think of an auction, but they're actually a high-volume, fast paced financial product suitable for day traders.
  2. Investing

    3 Reasons to Invest in Discounted Commodities

    Though they're selling at depressed prices, there are several reasons that it could make sense to invest in commodities now.
  3. Investing

    The Role Of Speculators In The Commodity Market

    Contrary to popular belief, speculators are important for the market. Find out exactly what they do.
  4. Investing

    DBC: PowerShares DB Commodity Tracking ETF

    Find out about the PowerShares DB Commodity Tracking ETF, and explore a detailed analysis of the fund that tracks 14 distinct commodities using futures contracts.
  5. Investing

    Commodities Without Worries

    ETFs have made commodities investing easier, but look before leaping.
  6. Investing

    Agriculture Commodities Are In The Bear's Sights

    Agriculture stocks have experienced strong moves higher over recent weeks, but chart patterns on sugar, corn and wheat are suggesting the moves could be short lived.
  7. Investing

    The 3 Best ETFs to Short Commodities (DNO, SZO)

    Learn about the strategies of three inverse commodity ETFs, and discover why they offer an alternative method to bet on a decline in commodity prices.
  8. Investing

    How Commodity Pricing May Correlate to Inflation

    Commodity prices are believed to be a leading indicator of inflation. But, that may not alway ring true. Globalization contributes to changes in trends.
Trading Center