Commodities are raw materials or agricultural products that have intrinsic value and can be traded on commodity exchanges around the world.

More About Commodities

Continue reading to learn more about:

In what way does an item become an item of value in a market place?
What Factors Influence the Price of a Good?
What is their purpose and how do they function?
Two types of commodity contracts
Commodity information in general

1 Step 1

In what way does an item become an item of value in a market place?

Commodities are without a doubt the backbone of world trade. Crude oil, oats, wheat, cotton and gold are just some examples of commodities. Commodities are derived from the elements and are therefore not only abundant in the world but worldwide in availability. Commodities can be sold and managed through many different processes from funds that invest in commodities to futures contracts. Commodities on the other hand I define as products like: high-quality black granite, decorative wooden bookcases and apparel. These products have been created out of hard work, innovation, imagination and creativity. These products have qualities that go beyond just being a commodity. By virtue of process, people have created something unique that they can sell on the market place.


What Factors Influence the Price of a Good?

There are 3 factors that affect the price of a good.

1. Quantity Demanded - How many units of a good consumers will buy at different prices

2. Price of Related Goods - When the price of one similar good goes up, people usually buy less of it and more of another

3. Real Income - Real income measures a person's ability to purchase goods and services in a year.


 What is their purpose?

Commodities are traded for profit, either on their own or in the context of a futures contract. Types of financial instruments that are considered to be "commodities" include metal ores, precious and base metals, energy sources (oil, coal and gas), agricultural commodities (such as corn, wheat and soybeans) and others.

How do they function?

Commodities are goods that have no brand name, no logo, and no marketing campaign. They're materials used for manufacturing another product. If you need simple steel wire for a particular job, you might end up buying some commodity wire. The price of a commodity can change from day to day and from one region to another. The use of commodities is advantageous when you're looking for an affordable material package for a particular application, or when you want to fill the supply chain quickly with common materials at the lowest possible price.
  • Commodity trading can involve two agreements

    Commodity trading, involves two agreements made in the expectation of a future financial return. One is to buy something, the other is to sell it later – or even at a specific future time. Commodity trading can take place in a number of markets, including foreign exchange markets , stock markets , bond markets , energy markets , agricultural markets and metals like gold and silver . The commodity itself has value only when sold on an exchange and these commodities are called "over the counter" (OTC) commodities.
  • Other information about commodities

    Commodities are traded on organized exchanges where one commodity can be easily exchanged for another. Commodities are basic food and raw materials, such as gold, silver, wheat and oil. Some commodities include: precious metals like gold, silver and copper. Energy resources like coal and natural gas. Agricultural products like corn, coffee and soybeans.