Commodities

 

Most commodities are raw materials, basic resources, agricultural or mining products, such as iron ore, gold, or grains like rice and wheat.

Commodities can also be mass-produced unspecialized products such as chemicals and computer memory.

Soft commodities are goods that are grown, such as wheat or rice.

Hard commodities are mined. Examples include gold, helium and oil.

Energy commodities include electricity, gas, coal and oil.

Electricity has the particular characteristic that it is usually uneconomical to store, and must therefore be consumed as soon as it is processed.

There are roughly 30 different commodities that are available for trading on the U.S. commodity exchanges. Some commodities, like wheat, have been actively trading for more than 100 years.

Other commodities disappeared from exchanges because they could not attract enough trading interest. At the same time, others gained utility making them candidates for liquid trading instruments.

The markets for commodities are very time efficient as they are quick to react to any supply and demand change in order to find a balance. This allows traders to take advantage of usual high volatility in these markets as long as they have the foreknowledge to do so.

Let’s take a look!