Types of Commodities Traded

A commodity is a group of assets or goods that are important in everyday life, such as food, energy or metals. A commodity is alternate and exchangeable by nature. It can be categorized as every kind of movable good that can be bought and sold, except for actionable claims and money.

Hard and soft commodities are traded on the exchanges. Metals, crude oil, etc. fall under the category of hard commodities whereas agricultural commodities like corn, wheat, cotton, soybean, and guar are soft commodities as they have a limited shelf life. Let us concentrate on the types of commodity market in India and list of commodities traded on commodity market.

Commodity trading in India started way back in time, even before it did in many other countries. But, foreign invasions and ruling, natural calamities, and many government policies and their amendments were significant reasons for the diminishing of commodity trading. Today, even though there are various other forms of stock market and share market traders, commodity trading has regained its importance.

Commodity trading is where various commodities and their derivatives products are bought and sold. A commodity is any raw material or primary agricultural product that can be bought or sold, whether wheat, gold, or crude oil, among many others. When you engage in commodity trading, such commodities can diversify your asset portfolio.

Types of Commodities Traded

Commodities that are traded are typically sorted into four categories broad categories: metal, energy, livestock and meat, and agricultural.

1. Metals

Metals commodities include gold, silver, platinum, and copper. During periods of market volatility or bear markets, some investors may decide to invest in precious metals–particularly gold–because of its status as a reliable, dependable metal with real, conveyable value. Investors may also decide to invest in precious metals as a hedge against periods of high inflation or currency devaluation.

2. Energy

Energy commodities include crude oil, heating oil, natural gas, and gasoline. Global economic developments and reduced oil outputs from established oil wells around the world have historically led to rising oil prices, as demand for energy-related products has gone up at the same time that oil supplies have dwindled.

Investors who are interested in entering the commodities market in the energy sector should also be aware of how economic downturns, any shifts in production enforced by the Organization of the Petroleum Exporting Countries (OPEC), and new technological advances in alternative energy sources (wind power, solar energy, biofuel, etc.) that aim to replace crude oil as a primary source of energy, can all have a huge impact on the market prices for commodities in the energy sector.

3. Livestock and Meat

Livestock and meat commodities include lean hogs, pork bellies, live cattle, and feeder cattle.

4. Agriculture

Agricultural commodities include corn, soybeans, wheat, rice, cocoa, coffee, cotton, and sugar. In the agricultural sector, grains can be very volatile during the summer months or during any period of weather-related transitions. For investors interested in the agricultural sector, population growth–combined with limited agricultural supply–can provide opportunities for profiting from rising agricultural commodity prices.