Commodity

Commodity

A commodity is food, metal, or another fixed physical substance that investors buy or sell, usually via futures contracts.

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commodity

A generic, largely unprocessed, good that can be processed and resold. Commodities traded in the financial markets for immediate or future delivery are grains, metals, and minerals. They are generally traded in very large quantities. See also futures contract.

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Commodity. Commodities are bulk goods and raw materials, such as grains, metals, livestock, oil, cotton, coffee, sugar, and cocoa, that are used to produce consumer products.

The term also describes financial products, such as currency or stock and bond indexes.

Commodities are bought and sold on the cash market, and they are traded on the futures exchanges in the form of futures contracts.

Commodity prices are driven by supply and demand. When a commodity is plentiful -- tomatoes in August, for example -- prices are comparatively low. When a commodity is scarce because of a bad crop or because it is out of season, the price will generally be higher.

You can buy options on many commodity futures contracts to participate in the market for less than it might cost you to buy the underlying futures contracts. You can also invest through commodity funds.

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Commodity

What Does Commodity Mean?

(1) A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities most often are used as inputs in the production of other goods or services. The quality of a commodity may differ slightly, but it is essentially uniform across producers. Commodities traded on an exchange must meet specified minimum standards, also known as a basis grade. (2) Any good exchanged during commerce, including goods traded on a commodity exchange.

Investopedia explains Commodity

(1) Basically, there is little difference in a commodity from one producer to another; for example, a barrel of oil is a barrel of oil regardless of the producer. In contrast, electronic equipment is not a commodity, and the quality can be completely different, depending on the producer. Familiar commodities are grains, gold, beef, oil, and natural gas. More recently, financial products such as foreign currencies and indexes have been called commodities. Closer to home, cell phone minutes and bandwidth are becoming commodities. (2) The sale and purchase of commodities usually are carried out through futures contracts on exchanges that standardize the quantity and minimum quality of the commodities being traded. For example, the Chicago Board of Trade stipulates that one wheat contract must be for 5,000 bushels and a stated grade (e.g., No. 2 Northern Spring).

Related Terms:
• Futures
• Futures Contract
• Hedge
• Net Tangible Assets
• Over the Counter