Commodities what they are and how they are traded

Commodities: What They Are and How They Are Traded

Commodities definition and history. Also find out where commodities are traded.

Definition

The term Commodities refers to raw materials or so-called fungible goods, that is, those that are replaceable in satisfying the need to which they are connected, regardless of who produces them.

History and characteristics

The term Commodity entered the English language around the fifteenth century and derives from the French commodité. This term indicates an advantage or convenience.
Commodities, thanks to their peculiarity, are easily negotiable on the market and can be used as underlying assets for various financial instruments, for example, Commodity bonds, or Commodity futures, a sort of future contract in which one is obliged to exchange a pre-established quantity of goods, on a pre-established date and at a certain fixed price, on the date of the negotiation.

The categories

Commodities can be classified into two macro-categories: Soft Commodity & Hard Commodity .

The category of Soft commodities are those deriving from the agricultural and livestock sector, which can be divided into:

• agricultural commodities: oats, soybean meal, wheat, corn, soybean oil, soybeans, cocoa, coffee, cotton, lumber, orange juice, tobacco, and sugar.
• meats: beef, dairy cattle, pork and pork belly.

The category of Hard commodities are those of the energy sector, precious metals and industrial metals and can be divided into:

• precious metals: gold, platinum, silver and palladium;
• metals: aluminum, cobalt, nickel, copper, zinc, molybdenum, steel, tin;
• energy: gasoline, ethanol, natural gas, naphtha, petroleum and propane;
• electrical energy.

However , electricity has some peculiarities compared to other commodities:

• derives from other primary energy sources;
• must be used immediately;
• Storage and transportation involve high costs and waste.

Where are Commodities Traded?

In North America :

• Chicago Mercantile Exchange (CME
• COMEX
• New York Mercantile Exchange (NYMEX)
• Chicago Board of Trade (CBOT)
• Toronto Stock Exchange (TSX)
• Chicago Board of Trade (CBOT)

In Asia :

• Dalian Commodity Exchange (DCE)
• Multi Commodity Exchange (MCX)

In Europe :

• Intercontinental Exchange (ICE)
• London Metal Exchange (LME)
• European Energy Exchange (EEX)
• Euronext.liffe

In Italy

• ETFplus
• SeDeX
• IDEX