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What is a commodity? A short guide before you trade

Commodities are goods or products that can be traded on any global market. A commodity market deals with various kinds of raw materials, from precious metals like gold, diamonds, silver, and platinum to steel and other minerals. 

This market is also the platform for trading in physical goods such as wheat and coffee, to name a few. Read on to learn what a commodity market is, its functioning, and the commodities traded in it. 

What are the tradeable commodity stocks?

The term commodity is used to denote both hard and soft varieties of commodities. Hard commodities include natural resources like oil and metal and minerals like rubber and gold that are often mined or extracted.

Agricultural products such as coffee, rice, wheat or corn constitute soft commodities. Investors can trade in commodity stocks like crude oil, precious metals, energy, natural gas, energy, and spices in a commodity market. 

What are the different types of commodities?

There are four main categories of commodities that are traded in the commodity markets:

  • Metals: Metals are widely traded commodities, including copper, aluminium, nickel, gold, silver, and platinum. 
  • Agricultural goods: Agricultural and livestock products traded in the commodity markets include products such as sugar, cotton, spices, pulses, and grains, among others.
  • Energy goods: Energy goods used in industries and households are also widely traded in commodity markets. These include natural gas, oil, and other energy commodities such as coal and electricity.
  • Environmental goods: Renewable energy, carbon emission, and white certificates constitute environmental goods.

What commodities are traded in the Multi Commodity Exchange of India (MCX)?

  • Bullion: Gold, Silver
  • Agricultural commodities: Crude palm oil, mentha oil, castor seed, black pepper, cotton, cardamom, rubber, palm oil, etc.
  • Energy commodities: Natural gas, Crude oil 
  • Base metal: Brass, Aluminium, Lead, Copper, Zinc, Nickel

What commodities are traded in the National Commodity and Derivatives Exchange (NCDEX)?

  • Cereals and pulses: Maize kharif/south, maize rabi, wheat, barley, chana, moong, paddy (basmati), etc
  • Soft commodities: Sugar
  • Fibres: Kappa’s, cotton, guar gram, guar seed
  • Spices: turmeric, pepper, jeera, coriander
  • Oil and oil seeds: Soybean, castor seed, mustard seed, cottonseed oil cake, crude palm oil, refined soy oil, etc.

How is trading done in commodity markets?

There are almost 50 major commodity exchanges in the world which are well-established and well-regulated. 

Like the other exchanges and markets, the commodities market is also the platform where interested parties can trade commodities at present or future.

Traders can transact in these commodities either on the spot market or through derivatives such as commodity futures and options. As commodity prices generally move in the opposite direction of stocks, market volatility gives investors a chance to indulge in commodity trading.

What are the different commodity exchanges in India?

  • National Multi Commodity Exchange India (NMCE)
  • National Commodity and Derivative Exchange (NCDEX)
  • Multi Commodity Exchange of India (MCX)
  • Indian Commodity Exchange (ICEX)
  • National Stock Exchange (NSE)
  • Bombay Stock Exchange (BSE)

Which commodities are commonly traded in the world?

Some widely traded commodities globally include gold, crude oil, palm oil, corn, Brent, silver, wheat and coffee. Any price movement in a commodity in one part of the world also creates a ripple effect on the commodity prices in other economies. 

Gold is a commodity after crude oil that has a special position in the commodity market as it provides an investment cushion against fiat currencies.

Whenever there is a significant crash in global equity markets, it is more often than not followed by a sudden boost in gold prices. 

What determines commodity prices?

The economic principles of supply and demand govern the commodity stock price. Supply and demand for commodities can also be affected by factors such as natural disasters, economic shocks, and investor appetite. If an investor expects a rise in inflation, he may purchase commodities as a hedge against inflation. 

What are the different types of commodity traders? 

  • Buyers and producers

Buyers and producers use commodity futures contracts for hedging purposes. These contracts guarantee a set price for the commodity when the contract expires.

  • Speculators

The second type of commodities trader is the speculator, who trades in the commodities markets to profit from volatile price movements. 

Final thoughts 

Commodities have been an essential part of commerce for a long time, but commodities trading has become increasingly standardised in the past decades. Every type of movable good that can be bought and sold, except for actionable claims and money, can be considered a commodity.


Can I make money trading commodities?

If you understand the factors that influence commodity prices, commodity trading may be profitable for you. It is possible that you may be disappointed if you start a demat account now and expect profits from commodity prices tomorrow. However, holding equities for a long time might result in significant returns. 

Which commodity is best for intraday?

While there is no definite answer to this, the top commodities with the most market movement are natural gas, crude oil, coffee, gold, wheat, sugar, silver, and copper. Without directly purchasing futures, investors may participate in the commodities market via exchange-traded funds (ETFs) and exchange-traded notes (ETNs).

Is commodity trading good or bad?

Investing in commodities may help diversify your holdings. Commodities, such as gold and other precious metals, may function as an inflation hedge. Demand-supply dynamics, inflation, political tensions, and currency fluctuations are some of the variables that impact trade.

How do beginners invest in commodities?

As a beginner, you can invest in commodities in many different ways:

Physical ownership. This is the most common way to invest in commodities.
Futures contracts 
Individual securities
Mutual funds, exchange-traded funds (ETFs), and exchange-traded notes (ETNs)
Alternative investments, like Hedge funds or private investments

What does a commodity trader do?

Investors in physical assets such as oil, gold, or agricultural items are referred to as commodity traders. Commodity traders may be individuals or businesses. They buy and sell commodities daily based on the economic trends and opportunities in the market.

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