Commodities are basic goods or raw materials that are interchangeable with other goods of the same type. They are typically used as inputs in the production of other goods or services. Commodities are traded on markets and are categorized into two main types:

1. Hard Commodities: These are natural resources that are mined or extracted, such as:

Oil

Gold

Silver

Copper



2. Soft Commodities: These are agricultural or livestock products that are grown or raised, such as:

Wheat

Coffee

Cotton

Cattle




Characteristics of Commodities:

Fungibility: A commodity is considered interchangeable, meaning that one unit of a commodity is essentially the same as another (e.g., one barrel of oil is the same as another of the same grade).

Standardization: Commodities are usually graded or standardized to ensure quality and uniformity in trading.

Global Market: They are traded on international exchanges, such as the New York Mercantile Exchange (NYMEX) or the Chicago Board of Trade (CBOT).


Investors and businesses often trade commodities as a way to hedge against inflation, diversify their portfolios, or speculate on price movements.