Commodities trading is a way of investing in specific physical products that are traded on stock markets. The types of products that fall within the commodities category include natural resources such as grain, livestock, petroleum and oil, for example. Here, you do not invest in the company that brings the commodity to market as such but in the commodity itself.
Commodities - like any other investment product - can fluctuate in price due to various reasons. For example, certain commodities like grain may not be available in bulk during certain times of the year. Other commodities may have a more constant availability.
In commodities trading the trader will usually buy a futures contract that has been set up with a commodities supplier for the future supply of a commodity. The aim here is to buy commodities that are going to give the best return on investment. Trading on this kind of market often requires some specific experience as there are a lot of factors that can come into play here that could affect the supply of a product. The aim here - as with any investment - is to buy at as low a price as is possible and to sell at as high a price as is possible.
There are various kinds of commodities that can be traded. These include:
- Grains - i.e. corn, soy beans and wheat.
- Energy - i.e. oil, gas and petroleum.
- Metals - i.e. gold and silver.
- Softs - i.e. coffee, cotton and sugar.
- Livestock - i.e. cattle and pigs.