Commodity markets are, simply put, markets that track the price of real commodities, or valuable trading items. Like the stock market, investors watch trends in commodities to attempt to buy low and sell high.
Sample Commodities
Commodities commonly traded on the market include agricultural products like rice, corn, and cattle; metals like gold and silver; and energy resources like oil and natural gas.
Commodity Trading
Commodity trading is centralized through many international exchanges, much like stocks. There are several commodity exchanges in the USA, such as the New York Mercantile Exchange and the Chicago Board of Trade.
Price Movements
As would be expected, commodity price movements are determined by public perception of supply and demand. A great demand for food from developing countries causes the price of corn to rise, while a global movement away from oil and toward greener technologies causes the price of oil to fall.
Forward and Futures Contracts
Forward and futures contracts are used in the commodity markets to buy set commodities at a set price, on a set future date. These are often used by both investors and producers to guarantee future prices.
Lack of Actual Product
Just as many stock investors never actually exercise their partial ownership in a company, many commodity investors never actually see or deal with the product they trade in. Commodity producers, manufacturers, and buyers, on the other hand, use commodity markets to leverage production and lock-in profits.
