What are commodities?

Commodities refer to raw materials that are extensively used in industry or agriculture, and are purchased and sold on a wholesale rather than retail basis.  Commodities trading is the buying and selling of these raw materials. Sometimes it involves the physical trading of goods. But more often it happens through futures contracts, where you agree to buy or sell a commodity for a certain price at a specified date.

Commodities are categorized into either soft or hard commodities. Hard commodities, which are defined as natural resources that must be mined or extracted such as gold or oil. Soft commodities are agricultural products or livestock such as corn, wheat, sugar and meat.

Some examples of commodities include;

• Energy (Hard) – including crude oil, natural gas, etc.

• Basic raw materials (Hard) – including gold, silver, copper, aluminum, etc.

• Agricultural products (Soft) – including sugar, corn, coffee, etc.

• Livestock (Soft) – cattle, milk, beef