In economics, a commodity is a basic good used in commerce that is interchangeable with other goods of the same type. Commodities are often used as inputs in the production of other goods or services. Their quality may differ slightly, but it is essentially uniform across producers.
Commodities generally fall into two main types: hard and soft commodities.
- Hard commodities are natural resources that must be mined or extracted—such as gold, rubber, and oil.
- Soft commodities are agricultural products or livestock—such as corn, wheat, coffee, sugar, soybeans, and pork.
Commodities are usually traded on commodity exchanges, where buyers and sellers trade based on current and future expected market prices. The prices of commodities can fluctuate due to factors such as supply and demand, weather conditions, geopolitical events, and economic indicators.
It’s important to note that when people talk about trading commodities, they are often referring to futures contracts. A futures contract is a legal agreement to buy or sell a particular commodity at a predetermined price at a specified time in the future. This is done to hedge against price risk.
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