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The Glossary
Commodity

A basic good or primary agricultural product used during a production process, interchangeable with other goods of that same type, such as coal, oil, grains, gold etc. Commodities are traded in small or large quantities through the spot market (cash) or derivatives as futures or options. The commodities market is highly standardised, and commodities are often used to protect investors against inflation.

 

Investor Corner

The Chicago Stock Exchange is the oldest commodities exchange in the world. The price variation in commodities highly influences the price of food in the world. As commodity prices tend to increase in a period of high volatility, they are considered a refuge investment.

 

Today

Even today, commodities trading is used by farmers to hedge against the decrease in the price of their produce. But, in addition to buyers and producers, a third category of traders has emerged: speculators. Speculators benefit from the high level of volatility of the asset class.

 

Anecdote

If you don’t want to face the surprise of actually receiving the ounce of gold you traded through a future delivered, make sure you do not miss the expiry date of the futures contract.