Commodity

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Financial Terms and Glossary

Commodity

A commodity is a basic good used in commerce that is interchangeable with other goods of the same type. Commodities are typically raw materials or agricultural products that can be bought and sold in bulk, such as oil, gold, natural gas, wheat, or coffee. They are divided into two categories: hard commodities, which are natural resources like oil and metals, and soft commodities, which include agricultural products like wheat and coffee.

Example

Crude oil is a hard commodity that is traded globally. Its price fluctuates based on factors like geopolitical tensions, supply constraints, and changes in global demand.

Key points

• A commodity is a basic good that is interchangeable with others of the same type, such as oil, gold, or wheat.

• Commodities are traded on global exchanges, and their prices are determined by supply and demand.

• They are classified as hard commodities (natural resources) or soft commodities (agricultural products).

Quick Answers to Curious Questions

What are the two types of commodities?

Hard commodities, like oil and metals, are natural resources, while soft commodities, like wheat and coffee, are agricultural products.

How are commodity prices determined?

Commodity prices are influenced by supply and demand dynamics, geopolitical factors, weather conditions (for agricultural goods), and market speculation.

Where are commodities traded?

Commodities are traded on global exchanges such as the Chicago Mercantile Exchange (CME), New York Mercantile Exchange (NYMEX), and London Metal Exchange (LME).