Are “raw materials or raw farm products” that can be bought and sold. They tend to be standardized and interchangeable with other products of the same type.
Two Main Types:
1. “Hard Commodities” – Natural resources that are mined or extracted:
Gold, Silver, Crude Oil, Natural Gas, etc.
2. “Soft Commodities” – Agricultural produce or livestock:
Wheat, Coffee, Cotton, Cocoa, Sugar, Cattle, etc.
How to Trade?
You can sell in several ways, depending on your experience and goals:
1. Futures Contracts.
Most frequent approach.
An agreement to sell or purchase a specified amount of a commodity at a previously agreed price on a specified future date.
Traded on exchanges like the “Chicago Mercantile Exchange (CME)”.
2. Spot Trading.
Buying and selling commodities for “Immediate Delivery”.
Less favored by solitary traders due to logistics challenges.
3. ETFs & Mutual Funds.
“Exchange-Traded Funds (ETFs)” enable you to invest in a basket of commodities without actually owning the goods.
Suitable for “long-term investors” or entry-level investors.
4. CFDs (Contracts for Difference).
– Make price forecast without holding the underlying instrument.
– Allows leverage, but involves high risk.
– Retail traders prefer it.
5. Company Stocks.
– Indirect exposure through investing in shares of companies like “ExxonMobil” (oil) or “Barrick Gold” (gold mining)
What Affects Prices?
– Demand and Supply.
– Geopolitical Events.
– Weather Conditions (particularly for agriculture).
– Currency Fluctuations.
– “Economic Indicators” and “Interest Rates”.