What is a commodity?

What is a commodity?

A commodity is usually a raw material or agricultural good which has an extremely high demand and very little price differentiation between competitors.

If a good will not increase or decrease significantly in quality regardless of who brings it to market, and the demand is very high (such as for a good used in the production of many other products) it might be considered a commodity. Examples would be oil, silver, gold, steel and wheat, but a full list would be very extensive.

Commodities futures are actively traded on exchanges worldwide. There are boards which standardize the minimum quality levels of commodities being traded, and this is called "basis grade."

There are also many exchanges on which commodities futures are traded, including the Chicago Board of Trade (CME), the New York Mercantile Exchange (NYME), the Intercontinental Exchange (ICE), the London Metal Exchange (LME), and so on.

Many retail-level investors are drawn toward commodities because they like the idea of investing in tangible things which are familiar, but commodities markets can be very volatile.

How Volatile are Commodities?
Should I Invest in Commodities?