What Are Commodities?

Commodities are tangible goods — unlike stocks (ownership in a company) or forex (currencies).

They’re usually divided into two main categories:

1. Hard Commodities

Naturally occurring resources that are mined or extracted:

• Gold, Silver, Platinum
• Crude Oil, Natural Gas
• Copper, Nickel

2. Soft Commodities

Agricultural or livestock products:

• Wheat, Corn, Coffee, Sugar
• Cotton, Cocoa, Soybeans
• Cattle, Hogs

How the Commodities Market Works

• Commodities are traded mainly through futures contracts — agreements to buy or sell a specific quantity of a commodity at a set price on a future date.
• For example:
• You agree to buy 100 barrels of oil at $80 each, deliverable in 3 months. If oil rises to $90, you profit $10 per barrel.
• You can also trade spot contracts (immediate delivery) or commodity ETFs (exchange-traded funds).

Major Commodity Exchanges

• CME Group (Chicago Mercantile Exchange) – U.S.
• NYMEX – Oil and metals
• ICE (Intercontinental Exchange) – Energy and softs
• MCX (Multi Commodity Exchange) – India
• LME (London Metal Exchange) – Metals

Why Trade Commodities?

• Diversification: Prices often move differently from stocks and bonds.
• Hedge against inflation: Gold and oil often rise when inflation increases.
• Speculation : Traders profit from price changes.

Risk

• High volatility: Prices can swing sharply due to weather, war, or politics.
• Leverage risk: Futures contracts often use leverage, magnifying gains and losses.
• Storage and delivery: Physical commodities require logistics (unless you trade futures or ETFs).

Ways to Invest or Trade

• Futures contracts – for experienced traders.
• Commodity ETFs – simpler, no physical ownership (e.g., GLD for gold).
• Mining or energy stocks – indirect exposure (e.g., ExxonMobil, Barrick Gold).
• Mutual funds or index funds – diversified exposure.

Example

If you believe gold prices will rise:

• Buy Gold Futures, Gold ETF (GLD), or shares of gold mining companies. If you expect oil prices to fall, you could short oil futures or buy inverse ETFs.