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Commodity
See also Commodities Prices. A commodity is a product that is sold without differentiation by all suppliers. For example, an ounce of gold is the same as another ounce of gold, regardless of the seller. As a result, commodities tend to trade at a single market price, often with narrow margins. Most commodities are raw materials and agricultural products such as iron ore, crude oil, rice, sugar, soybeans, aluminium, rice, wheat, gold and silver. However, they can also be as complex as a freight contract, a personal computer or carbon emissions. By and large, commodities are widely consumed standardized material or energy resources that may be traded at a commodities exchange or a commodities futures exchange like the NYMEX or the COMEX. Commodities markets have been established as a means where producers can hedge their forward sales and commodities users can lock in prices. Speculators in these markets provide the necessary liquidity that is needed for the functioning of these exchanges. The first futures exchanges for rice are believed to have been established as early as the 16th century in Japan. A change in demand for a commodity may also be an indicator for the economic state of the industries using it. Falling demand may be the precursor to decreasing consumption. Rising demand of a commodity may be driven by reciprocal events and may attract speculators whose investments may exaggerate a fundamental trend. |
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