Everything about Commodity totally explained
A
commodity is anything for which there's
supply, but which is demanded without
qualitative differentiation across a foreign market.
Characteristic of commodities is that their prices are determined as a function of their market as a whole. Well-established physical commodities have actively traded spot and derivative markets. Generally, these are basic resources and
agricultural products such as
iron ore,
crude oil,
coal,
ethanol,
sugar,
soybeans,
aluminum,
rice,
wheat,
gold and
silver.
Commoditization occurs as a goods or services market loses differentiation across its supply base, often by the diffusion of the
intellectual capital necessary to acquire or produce it efficiently. As such, goods that formerly carried premium
margins for
market participants have become commodities, such as
generic pharmaceuticals and
silicon chips.
Linguistically, the word commodity came into use in English in the 15th century, derived from the French word "", similar in meaning to "
convenience" in terms of quality of services. The Latin root meaning is
commoditas, referring variously to the appropriate measure of something; a fitting state, time or condition; a good quality; efficaciousness or propriety; and advantage, or benefit. The German equivalent is
die Ware, for example wares or goods offered for sale. The French equivalent is "produit de base" or "matière première" like energy, goods, or industrial raw materials.
A commodity's value changes over time.
Commodity trade
In the original and simplified sense,
commodities were things of value, of uniform quality, that were produced in large quantities by many different producers; the items from each different producer are considered equivalent. It is the
contract and this underlying standard that define the commodity, not any quality inherent in the
product.
Commodities exchanges include:
Markets for trading commodities can be very
efficient, particularly if the division into pools matches demand
segments. These markets will quickly respond to changes in
supply and demand to find an
equilibrium price and quantity. In addition, investors can gain passive exposure to the commodity markets through a
commodity price index.
Further Information
Get more info on 'Commodity'.
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