What are Commodities?

The commodities market is different than the other assets I have listed. They are a category of their own because there are many differences between commodities and other investment types. A commodities is a physical assets that can be bought and sold. In your case, you can invest in them or trade them. I am not sure what you would do if the commodities actually showed up at your house. Who needs that 15,000 pounds of orange juice delivered to their house anyways?

What commodities are is the raw materials used in the production of goods and services.  As an example, oil and fuel is needed for Sky West to fly you in one of their planes or Tropicana needs oranges to produce juice for you. The raw materials change value depending on the demand of the marketplace which is what trading commodities is about. Going back to the orange juice example if there was a harsh winter causing orange trees to freeze and die then there would more than likely be a surge in demand for them.

Which Markets Are They Traded on?

Spot Market

The spot market is a real-time market that commodities are traded on. This is also know as the cash market because the goods are sold in real time.

Futures Market

These are actually derivatives because a future is a contract to buy or sell a commodity. There are some differences between these and stock options. First, the commodities must be delivered to the holder of the contract. Second, in order to close out this contract the other side must be purchased. To explain why these are for experts, understand that you can lose more than your initial trade.

Commodities Examples

Agriculture

 Grains

The first category of is called the grains category witch consists of plant-based materials used to make food for human consumption. As you can see from the list of agriculture item, these are raw materials used to produce other types of foods.

  • Oats
  • corn
  • wheat
  • rice




 Softs

The term softs is normally related to something that can be grown and isn’t mined. This is a general term and you will see in the list that these are items that we consume as humans. Some soft commodities examples are listed below.

  • coffee
  • cocoa
  • sugar
Livestock

Yes, you can trade live cattle on the commodities market. This is one of the oldest goods in the United States, so it only makes sense.

  • Live Cattle
  • Lean Hogs
  • Feeder Cattle

Metals

There are actually two classes of metals. The first class is used in industrial projects and in other products. It is not necessary to trade these through the commodities market. You can also purchase shares of producers, builders, or manufactures. Below I have listed a few different metals traded in this category:

  • Copper
  • Lead
  • Zinc

Precious Metals

This is the second category of metals traded on the commodities market. Like regular metals you can also buy or trade these in different ways to make money off the demand; however, these are assets you can purchase the real physical asset and hold onto them.

  • Gold
  • Platinum
  • Silver

Energy

The energy sector is also a major group. These include all types of Energy that are used for auto, home and commercial pourposes. There will always be a demand for these goods. I have listed a few largly traded energy commodities below.

  • Oil
  • Natural Gas
  • Propane

Not Traded

The best example of a non-traded commodity would be energy producing uranium. This is a large portion of the energy sector but there is no market that we can participate in. If you want to make a trade in this part of the energy sector then you need to buy a uranium producer such as the stock Cameco.

For a full list of all commodities traded go to Wikipedia or Trading Economics.