A commodity market is a place where raw materials or primary goods can be bought, sold, and traded. There are currently about 50 major commodity markets worldwide that facilitate trade in approximately 100 primary commodities.
What is commodity trading?
A product is a collection of assets that are essential to our survival, such as metals, food, and energy. Commodity trading occurs when a commodity may be exchanged on an exchange and has a price shift, allowing it to be bought and sold similarly to stocks. There are four types of commodities in India, which are listed as follows:
- Agriculture – Corn, coriander, chana, castor seed, wheat, and other agricultural products are included.
- Energy – This category includes products such as crude oil, natural gas, and other forms of energy.
- Livestock and Meat – This category includes things like eggs, pork, and cattle.
Most traded commodities in the world
Commodity prices can be exceptionally volatile, creating opportunities for traders to profit by going long or short on these markets. Here we take a look at the top 10 most traded commodities in the world – including oil, gold and soybeans – and explain the factors that can affect their prices.
Commodities are the fundamental building blocks of the global economy, from which the majority of other commodities are produced. They can be divided into two classes. Natural resources that must be mined or processed are referred to as ‘hard’ commodities. Energy sources like oil and natural gas, as well as metals like gold and aluminium, are among them. Agricultural products such as crops and animals, on the other hand, are considered ‘soft’ commodities.
Traders like commodity markets because prices can be extremely unpredictable, which means there are always ways to benefit from going long or short. Consumer dynamics, weather patterns, infrastructure, government policies, economic growth, reserve levels, and currency valuations are all factors that can influence pricing.
What are the most commonly traded goods?
The following are the top ten most traded commodities :
- Brent crude (oil)
- Natural gas
- West Texas intermediate (WTI) crude oil
1. Crude oil
It is defined as light and sweet due to its low sulphur content and low density.
2. Natural Gas
It is a nonrenewable hydrocarbon that is used for heating, cooking, and generating electricity. Moreover, it’s also used as an automotive fuel and a chemical feed stock for making plastics and other commercially relevant organic chemicals.
They are a valuable commodity, owing to their high protein content and low cost of production. Hence, they used to make soyabean meal (animal feed), soyabean oil, and meat and dairy substitutes like tofu and soy milk, among other foods and agricultural products. It can be used to make biodiesel as well. The United States produces the most soyabeans, followed by Brazil, Argentina, China, and India.
Demand for animal feed, biodiesel, and meat and dairy substitutes, as well as factors that could influence supply, such as unusual weather conditions, can affect soyabean prices.
Often identified as maize, is a valuable soft commodity. It’s a food that’s often used to make animal feed, ethanol, corn syrup, and starch. They come in a variety of shapes and sizes, with the most common being dent, flint, pod, popcorn, flour, and sweet corn. This is mostly grown in the United States, with China, Brazil, and Argentina following closely behind.
It’s price is highly influenced by demand for animal feed and biofuels, as well as weather conditions, similar to soyabeans. Subsidies to agriculture may have an effect on prices. Corn productions is subsidised, providing a strong incentive for production and assisting in the maintenance of global supplies.
Due to its shiny yellow colour and sheen, gold has been a widely sought after precious metal for centuries. It is now mainly used for the manufacture of jewellery and as an investment asset. However, since it is highly resistant to most chemical reactions and conducts electricity, a limited amount is used in industry. China mines the most gold, followed by Australia, Russia, and the United States.
In times of economic and political instability, gold is generally regarded as a “safe-haven” asset, as its value continues to hold or increase. As a result, many traders shift money into gold when the dollar falls in value, causing gold’s price to have an inverse relationship with the dollar’s value.
Just like gold, it is a precious metal that is highly sought after. However, silver on the other hand, is commonly used in the production of solar panels and photographic films. Even though it is a precious metal, most people prefer gold because it is a more secure store of value.
Similar to gold, it is commonly used in the electronics industry due to its excellent electrical conductivity. However, the price can fluctuate depending on economic production due to its widespread use in the manufacturing industry. Chile, China, and Peru are the top producers of this metal.
8. West Texas intermediate (WTI) crude oil
The West Texas Intermediate (WTI), also known as Texas light sweet, is a crude oil grade that is used as a price benchmark. Because of its low density and low sulphur content, this grade is referred to as Medium crude oil and Sweet crude oil. It is the underlying material for oil futures contracts on the New York Mercantile Exchange.
Most traded agricultural commodities
- Soybean Oil
- Soybean Meal
- Rough Rice
It should be remembered that each product is unique, and its price is influenced by a variety of factors. Increased or decreased demand for jewellery, as well as changes in demand for a store of value, may affect gold and silver prices. During periods of economic uncertainty, demand for gold and gold-related investments can rise as investors seek to protect their assets. As a result, before agreeing to exchange goods, you must perform a detailed review.