Do you know that you engage with commodities daily? All the things that you use in your everyday life, including your morning coffee, apple juice, the fuel that runs your car, and the power that turns your home appliances on, are all types of commodities that can be used as assets for trade or to earn a profit.
But wait! Do not start blaming yourself for staying unaware of the fact that you could have invested in any of such assets like raw materials. We will tell you all the basics of commodities and their online forex trading, its origin, its categories, and how to trade them.
You might be unaware of the fact that commodity trading dates back to very ancient civilizations. It was originated in Iraq, where clay tokens were used as an exchange for goats. Then Japan started to sell rice stores by selling rice tickets in the 17th century.
However, the Chicago Board of Trade was set up in 1848, where the global trade of commodities kicked off, which is now among the best market types to trade.
What Are Commodities?
Commodities are raw materials or basic goods that can be bought or sold. These basic goods serve as the building blocks for the more complex types of services or goods. What makes commodities different from other types of goods is that they are exchangeable with the same type of goods. This is the reason; we call commodity as fungible.
What does fungible mean? It means that a commodity is standardized, and all the units of the same commodity will have the same price regardless of place, currency, or market. A few local factors, such as taxes and transportation costs, may slightly affect the price.
Categories Of Commodities
The two main categories are hard and soft commodities. Hard commodities are natural resources extracted out by digging mines such as coal, gold, etc. Soft commodities are livestock and agricultural products.
Commodities are categorized depending upon their source of extraction and production. The four categories of commodities are,
- Livestock Commodities
- Agricultural Commodities
- Metal Commodities
- Energy Commodities
How Are Commodities Traded?
Basically, commodity trading takes place in two different ways.
- Buy or sell commodities through exchanges
- Trade commodities via derivatives
Some commodity markets are more liquid than others. For example, commodities such as Natural gas and petroleum are more tradeable than markets like oats and pulses, juices, or feeder cattle.
A commodity market can be a virtual or physical place where traders buy or sell primary products or raw materials. If we talk about the commodity market’s current situation, there are about 50 commodity markets that are providing trading centers for more than 100 types of commodities.
Why Trade Commodities?
Trading commodities can offer many benefits.
Traders can earn high profits by investing in liquid markets. Commodity prices can have dramatic swings; therefore, traders with the right knowledge can have remarkable advantages.
Commodities trading offers a vast exposure to the market. It can be a good source to diversify a trader’s portfolio.
A Safe Haven For Investment
Many assets, such as gold, retain their value. Investing in such commodities during market turbulence is a wise decision because the prices do not only retain but are likely to increase.
Growth in the population that has reached up to around 8 billion can significantly impact the demand for commodities. A growing population means an increasing number of mouths to feed and increased demand for energy. Thus, the increase in demand will ultimately lead to a rise in commodity prices.
If you are interested in even more business-related articles and information from us here at Bit Rebels, then we have a lot to choose from.