What are Commodities in investing?

Commodities are natural resources or agricultural products traded in bulk. They are interchangeable with other goods of the same type. Commodities in investing are classified as a substantial asset class.

Grains, coffee, sugar, corn, natural gas, oil, gold, and precious metals are conventional examples of commodities. They have a direct impact on goods and services prices

What are the main types of commodities?

Commodities are split into two categories. These are soft and hard commodities.

Soft commodities include products that are grown or produced. Agricultural and farming products are considered soft commodities.

Hard commodities are raw materials that occur naturally. They are drilled and mined mostly. Precious and base metals and energy are classified as hard commodities.

Soft commodities are not long-lasting and often tend to be more volatile since they are more open to unpredictable risks such as weather. Hard commodities are less volatile and effortless to store than soft commodities.

Commodities are bought and sold through either futures contracts on an exchange or forward contracts​ over-the-counter. Investors who buy a commodity through a futures contract take liability to buy and receive the underlying instrument once the contract expires. Buying shares of the companies that produce commodities is also another way to invest in them.

Investors generally do not have custody or physical control over the goods. They predict the price and take a long (buy) or short (sell) position on a commodity through an online trading platform.

Commodities with low volume may be prone to greater volatility, and price swings may drive higher while high volume commodities, on the other hand, are more stable in value.

New York Mercantile Exchange, Chicago Mercantile Exchange, London International Financial Futures and Options Exchange, and NASDAQ OMX Commodities are some of the major commodity exchanges and regulators.

Gold, crude oil, copper, coffee beans, and wheat are the most traded commodities instruments on financial markets.

Crude oil, refined into diesel, petrol, petrochemicals, and lubricants products, is one of the most in-demand commodities. Gold, used for jewelry, is viewed as a comparatively safe investment and an important commodity.