Commodity as defined by the English dictionary is a raw material or a primary agriculture product that can be bought, traded or sold, some examples include; copper, coffee, and sugar. With that it can be easily assumed that commodities are materials that can be used in everyday things. Commodities play important roles in our daily lives and there are countless raw materials that can be found all over the world. Commodity trading in the World Market is one of the most diverse and active trade in the market.
Like in any investment, the goal in commodity trading is to buy low and sell high. There are only two ways to trade in commodity, one is spot and the other is futures market, which is the most common form of individual trade in the commodities market.
Where to put your Investment
Although many have merged or gone out of business, there are still various types of commodity trading around the world. Most carry a few different commodities, though some specialize in a particular group. For instance, the London Metal Exchange only carries metal commodities.
Types of Commodities
Today, Tradable commodities fall into four categories, which include:
- Metals (Gold, Silver, Platinum and Copper)
- Energy (Crude Oil, Gas, Heating Oil, Natural Gas)
- Livestock and Meat (Lean Hog, Pork Bellies, Live Cattle etc., )
- Agricultural (Corn, Soybean, Wheat, Rice, Cocoa, Coffee etc., )
How to Invest in Commodity Trading
A famous way to invest in commodities is through a futures contract, which is an agreement to buy and/or sell, in a given date, a specific amount of a commodity at a specific price. Futures trade is available on every category of commodity.
Two types of inventories participate in the futures markets:
- Commercial or institutional users of the commodities
Exchange traded funds and exchange traded notes which traded like stocks, allow investors to participate in commodity price fluctuation without directly investing in futures contracts.