What is Commodity?

The basic definition of a commodity is usually an agriculturally grown or naturally-occurring material that can be traded (bought and sold). Commodities of the same type and grade, do not differ much between producers, making them interchangeable and priced similarly, if not equally. There are some commodities that possess an intrinsic value due to their scarcity and difficulty in extracting or mining, this mainly includes metals like gold, silver and platinum.

4 Categories of Commodities:

Agricultural Commodities: includes raw goods like sugar, cocoa, coffee beans, etc. Energy Commodities: includes petrol products like oil and gas. Metal Commodities: includes precious metals like gold, silver, and platinum, as well as base metals including copper. Livestock Commodities: includes pork bellies, live cattle, and meat commodities. Other terms you might come across when trading in commodities are soft and hard commodities. Soft commodities are agricultural commodities or animals, while hard commodities are mainly those that have been mined, like gold, oil, etc.

There are many different factors that can affect the price of a commodity. Prices for certain commodities have been known to surge when a commodity is scarce or threatened. In general, the most influential factors across the commodities are changes in the supply and demand of a specific commodity. This is not to say that other factors cannot influence the price, including weather, war, and changes to the U.S. dollar.

Here’s an example: The largest producer of corn in the world is the United States. Imagine there was a sudden freeze across the United States, just before harvest time, which decimated all of the U.S. corn crops. As a result, the global supply of corn would drop, and the demand for corn would rise. Most likely, as a result, the price of corn would rise, or surge, as the supply dwindles and it becomes a ‘hot commodity’.

With FXOPPEN, you can speculate on the prices of commodities with Contracts for Difference (CFDs), allowing traders to participate in the futures market with derivatives instead of the physical assets themselves.