Commodity

A commodity is a tangible consumable material that can be tradable by buyers and sellers in a commodity market place. Food grains, industrial raw materials, crude oil and metals are some of the examples of commodities that can be used for investment.

The commodities are broadly classified into two categories; soft commodities and hard commodities. Soft commodities include Coffee seeds, Tea leaves, Sugar, Oil seeds, cereals, food grains, etc. Hard commodities consist of metals, crude oil and similar type of industrial raw materials.

Commodity market is a place that the buyers and sellers of commodities transact their business. Commodity market can be either a physical location or a virtual online market place.

Commodity Markets

The origin of commodity markets can be traced to ancient civilizations of Mezabetomia in Southern Iraq. They used some kinds of tokens for trading commodities.

They adhered to specific time frames and strict delivery schedules similar to present future contracts. The foundations of modern commodity market were laid in the19th century when crude oil was traded on market places.

The present commodity markets are highly regulated and provide high degree transparency in the aim of protecting small and medium investors.

Some of the famous commodity markets are:

• New York Mercantile Exchange.
• Kansas City Board of Trade.
• Chicago Board of Trade.
• Multi Commodity Exchange.
• London Metal Exchange.
• Dalian Commodity Exchange.
• Kuala Lumpur Futures Exchange

Commodities are becoming one of the alternative investment avenues. It is viewed as one of the ideal options to diversify portfolio. Stock market fluctuations and volatility deters many investors from investing in stocks. For such investors commodity market offers alternative investment options.

The commodity rate is mainly based on demand and supply positions rather than speculation unlike stock market. Thus commodities provide high degree of stability and reliance on investment in comparison to the stock market.

Risks and rewards

Like any other investments, commodity market is also prone to investment risks. Price fluctuations and volatility are common in commodity markets to some extent. The investors need to understand various aspects of commodity market before putting their hard-earned money.

Seeking professional assistance helps in choosing the right kind of commodity investments. Personal financial advisors and investments consultants provide valuable assistance in commodity investment. There are many online sources that educate investors about commodity market.

They also offer tools and tips to guide investors to select the right type of investments. Many mutual funds come with specialized schemes such that they are invested in commodity markets. Beginners can invest on commodities through such mutual funds.