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What Are Commodities in Comparison to Other Financial Instruments?

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What Are Commodities

What Are Commodities?

If you want to know what are commodities, you do not have to look very far. They are either all around you or they were used to create the things around you. Essentially, commodities are items that people or industries consume as a matter of course.

For example, a look in your cupboard will tell you a little about what are commodities. Corn is used to make a great many processed foods and it is also an ingredient in many soft drinks and juices. This commodity is a hard commodity because people take it from the ground.

When you consider that corn which made so many products in your cupboard, you should realize another quality of commodities. They are fungible. This means that a commodity from one part of the world is essentially the same as a commodity from another part of the world. You can easily make the same foods with corn from Iowa as you can with corn from South America.

This description only holds up so well for corn. For other commodities, such as gold, it serves even more accurately. After it is properly refined, gold from Canada is exactly equivalent to gold from China.

What Are Commodities in Your Portfolio?

What are commodities? They are potentially profitable investments because demand for them is fairly consistent across the board and can spike on different occasions. They also present excellent opportunities to diversify your holdings if you think that you are too heavily into stocks, bonds or other financial instruments. Since certain commodity prices have a tendency to surge at certain times, knowing exactly what are commodities can also help you use them to increase your regular earnings.

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