Profiting from Commodity Trading
Commodities are natural resources that have a global market, most of which fall into the category of agriculture, energy, or metals. The main characteristic of commodities is that they are needed by modern societies and they greatly fluctuate in price. The commodity markets help to maintain price stability through forward and futures contracts by allowing suppliers to lock in the price of their commodity before they can deliver it to the consumer, which also fixes the future price for consumers.
Most commodities have a limited geographic distribution. Only certain nations, regions, or companies have economic access to these specific resources, but virtually every region needs the resources. Hence, a large global market has developed to enable the distribution of commodities from their most economical sources to where it is needed.
Uniformity and fungibility are other qualities of commodities—gold is gold and platinum is platinum. Since the commodity is not uniquely identifiable, it is fully fungible (interchangeable). While there are some differences in the quality of some commodities, especially oil and many agricultural products, these commodities are graded and classified as a specific type so that their characteristics are fairly uniform and therefore fungible, since it would be very difficult—in some cases, impossible—to inspect the whole product. Of course, it is only because inspection is not necessary that the large commodity markets, with its many traders and speculators who can’t inspect the product, can exist today.
Hence, most commodities can be characterized by the following qualities: natural resources needed by most nations or regions; large price fluctuations; economical sources in limited geographic regions; and uniformity of the product.
Types of Commodities:
Some examples of commodities include the following:
- Agricultural : Chillies, Mentha Oil,Guar Gum,Pepper etc .
- Energy : Crude Oil, Natural Gas, Heating oil etc.
- Metals : Aluminum, Copper, Steel, Zinc, Lead ,nickel etc
- Bullion : Gold & Silver
