Categorized | Commodities

What is a Commodity?

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Commodity Information for New Traders

The term commodity is often confusing for many investors. While it certainly has a meaning on the open consumer market, the term is often quite different for traders. Those who wish to trade on the commodities market must understand the basic definition, though, so that they can figure out the right types of commodities in which they wish to trade. This basic sort of knowledge might be easy to find, but it is still more important than almost anything else a trader can learn. After all, it is the building block of a good trading strategy.

Commodity Market Basics

Technically speaking, a commodity is a uniform product that is traded across various markets. Commodities come in two varieties, hard and soft.  A hard commodity is a product that last for a long time and usually includes items like various ores, crude oil or even gold. Soft commodities, on the other hand, are products that have a limited lifespan. Most agricultural goods are considered soft commodities. To qualify as a commodity, an item must be basically interchangeable, gold is always gold, for example, but two toasters are unlikely to be identical. If a product is interchangeable and traded across markets, it is a commodity.

Commodities can be traded on the market in a manner that is somewhat similar to that of stock trading. Most investors who work with commodities speculate on the products — they buy and sell based on information about the products, not out of a desire to turn a profit or purchase the product itself. Those who can spot trends and make educated guesses as to the direction of the market are often able to turn large profits on this market. Learning about commodity trading is a good way to take advantage of a profitable part of the market.

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