2. What are commodities?

COMMOD

Commodities are tangible assets, including agricultural products, raw materials, energy, and metals, which are often used in daily life as the basis for the production of goods and services. Commodities are normally described by “Bulk”, which generally refers to the asset class that is large in number or volume and involves considerable storage space.

Because these commodities are closely related to public consumption, the supply and demand are very large, and can directly affect the basic livelihood of the people and even the income of an entire country, so they naturally become a major part of international trade and financial markets. 

 
There are four major categories of commodities: 

Agricultural products – including edible crops (corn, barley, soybeans, cocoa, coffee, orange juice, sugar) and livestock (lean hogs, live cattle, etc.)
Raw materials – including cotton, wood, rubber, etc.
Energy – including natural gas, crude oil, coal, etc.
Metals – including base and non-ferrous metals (iron ore, zinc, aluminum, nickel, steel) and precious metals. (gold, silver, palladium, platinum) 

In the financial market, the most frequently traded commodities are gold, silver, crude oil, corn, soybean, and so on. When it comes to commodities, the average investor tends to think of the gold market and the oil market which consists mainly of BRENT crude in the UK North Sea and WTI crude in the US. 

However, it should also be noted that because of the naturalness, scarcity, and timeliness of commodities (e.g. spoilage), the trade volume of specific commodities will vary due to the general economic environment and seasonal factors (e.g. harvest or crop failure). So, one of the characteristics of commodities is that prices fluctuate greatly. 

Commodities are important, but supply and demand are not stable. For this reason, both buyers and sellers in the market tend to avoid the risks brought by price fluctuations. Therefore, futures trading of commodities in the financial market naturally arises at the historic moment, with the purpose of locking a forward price and hedging risks.

In addition, for many years, people have been discussing whether bitcoin, also known as a cryptocurrency or digital and virtual currency, is a kind of currency. However, the market has moved to define it as one of the commodities, and the Commodity Futures Trading Commission(CFTC) has introduced and developed bitcoin futures trading as part of its regulatory framework, further confirming the “commodity” status of bitcoin. 

 

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Risk Warning: The above content is for reference only and does not represent ZFX’s position. ZFX does not assume any form of loss caused by any trading operations conducted by this article. Please be firm in your thinking and do the corresponding risk control. 

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