What are Commodities?

In trading, commodities refer to raw materials or primary agricultural products that can be bought and sold, such as precious metals, energy, agricultural products, and industrial metals. Commodity trading can involve buying or selling physical commodities, such as crude oil or gold, or trading commodity futures contracts, which are agreements to buy or sell a commodity at a predetermined price and date in the future.

There are several benefits to trading commodities:

• Commodities can provide a diversification benefit to a portfolio of stocks and bonds because they tend to have low correlations with traditional asset classes.
• Commodities can serve as an inflation hedge because their prices tend to rise during periods of inflation.
• Commodity prices can be influenced by changes in global supply and demand dynamics.
• Trading commodity futures contracts can provide traders with leverage, meaning they can control a larger position with a smaller amount of capital.
• Speculators can profit from commodity trading by buying low and selling high or by selling high and buying low.