What Are Commodities and Understanding Their Role in the Stock Market


What Are Commodities?
Commodities are raw materials used to manufacture consumer products. They are inputs in the production of other goods and services, rather than finished goods sold to consumers.

In commerce, commodities are basic resources that are interchangeable with other goods of the same type. The quality of a given commodity may differ slightly, but it is essentially uniform across producers. When traded on an exchange, commodities must also meet specified minimum standards, also known as a basis grade.

  • A commodity is a basic good used in commerce that is interchangeable with other commodities of the same type.
  • Commodities are most often used as inputs in the production of other goods or services.
  • Investors and traders can buy and sell commodities directly in the spot (cash) market or via derivatives such as futures and options.
  • Hard commodities refer to energy and metals products, while soft commodities are often agricultural goods.
  • Many investors view allocating commodities in a portfolio as a hedge against inflation.