What is Commodity Trading?

A commodity is a raw product from a variety of sectors including agricultural products (such as corn or coffee), livestock and meat (such as live cattle or frozen pork bellies), energy (such as petroleum), precious metals (such as gold) and industrial metals (such as copper). Individual lots of such commodities are all the same and have the same market price, so it makes little difference where or from whom you buy them. If you are buying or selling gold, it doesn’t matter if the gold came from America or Russia. Gold is gold.

Trading of such commodities occurs at exchanges all over the world through standardized contracts that specify a price and terms of delivery. Some speculators simply buy and sell the contracts and never actually receive the commodity. A few of the U.S. commodities exchanges are the Chicago Board of Trade (CBOT), the New York Mercantile Exchange (NYMEX), and the Kansas City Board of Trade (KCBT) that specializes in hard red winter wheat — the principal ingredient of bread.