Commodity definition

A commodity is a basic physical asset, often used as a raw material in the production of goods or services.

To be traded on the markets, a commodity must be interchangeable with another commodity of the same type and grade. That means that to a trader, gold is gold: no matter where it was mined, or which company mined it. The term for this quality in commodities is fungible.

Types of commodity

Some of the most commonly traded commodities include:

• Gold
• Oil
• Wheat
• Natural gas
• Beef

They are split into two varieties. Hard commodities are metals or energy resources, mined or extracted from natural resources. Soft commodities are agricultural, farmed or grown. Soft commodities tend to be seasonal, and prone to spoilage.

The buying and selling of commodities for profit is known as commodities trading. Commodities trading is split into two types, the spot market and the futures market. The spot market is used for commodities that will be delivered immediately, and the futures market is for commodities that will be delivered at some point in the future.

Most commodities traders are speculators and do not wish to take delivery of the commodities they are trading, so most futures contracts are closed before their delivery date. Futures contracts are traded on futures exchanges, with most commodities being associated with a specific local exchange. 

With IG

Our platform enables you to speculate on the price movements of almost all of the major commodities traded on the markets. By spread betting or CFD trading, you can choose between short-term trading and futures contracts.