Commodities Overview

A commodity is a basic good or raw material that is used to produce more complex goods. Examples include oil, gold, copper, and sugar.

What separates commodities from other goods is the fact that they are standardised and interchangeable. This means that two equivalent units of the same commodity will be more or less identical, no matter where they are produced.

There are a number of advantages to trading commodities. Not only do commodities offer plenty of trading opportunities but they can also help diversify an investment portfolio.

The three main types of commodities are metals, energy, and agricultural commodities. Commodities are also often classified as hard or soft commodities.

Commodity prices are impacted by supply and demand. Demand can be affected by the health of the economy, growth in the emerging markets, consumer trends, manufacturing trends, and the strength of the US dollar. Supply can be affected by government policies, geopolitical events, and the weather.

There are a number of ways to trade commodities, however, CFDs are one of the easiest ways. CFDs are financial instruments that offer traders and investors the opportunity to profit from the price movements of a security without actually owning the underlying security.

The risks of trading commodities include price risk and leverage risk. Risk can be reduced by focusing on risk management strategies.

Reprinted from eToro, the copyright all reserved by the original author.