Commodities are physical goods such as mined goods, raw materials for manufacturing, all in bulk volume.
What are the examples of commodities?
Mined goods include Gold and other metals, petrol, raw materials including food grains, meat, rubber, orange juice—everything from agriculture products to crude oil to waterfalls in the head “Commodity.”
Commodities can be traded on the market. In older times, commodities were the means of exchange. In the barter system, one commodity was exchanged for another. For example: – Buying wheat in exchange for pulses. Gold bars were also used as means of exchange.
The commodities markets include derivatives trading using spot prices, futures, forwards, and options. Usage of the commodity futures contract is the most common way of investing in the commodities market. The futures contract derives its value from the underlying asset. One can also physically buy commodities.
How can one invest in commodities?
- By buying the commodity physically and storing it and selling it when the price increases. The most common commodity that is bought and stored physically is Gold
- Also, there are ETFs that trade in commodities to help the investor avoid the hassle of storing a commodity. For ex:- Gold ETF
- Commodities are traded virtually on commodity exchanges. They are exactly traded like other securities listed on the stock market
- One can also invest in commodities by buying the shares of those companies who produce those commodities. For ex:- If an investor wants to invest in water as a commodity, it can buy stocks of the company which is engaged in the business of water like Mueller Water Products which is listed on the New York Stock Exchange and Middlesex Water Co. which is listed on NASDAQ