Commodity is the main subject which composes the introduction of “Capital” written by Karl Marks. Marks speaks of commodities as “most common cells of the public” in Capital.
When we look for the meaning of the word commodity, we find out the following definitions:
In terms of finance; commodity is defined as a basic good used in commerce that is interchangeable with other commodities of the same type.
Gold, beef, oil, lumber and natural gas can be classified as commonly traded commodities. In addition to the above examples; we can also take coffee, beans, rice, wheat, sugar, iron, copper, silver, platinum and salt into consideration as other examples of commonly traded commodities.
Commodities are basic because they have simply been drawn or extracted from their natural state and brought up to a minimum grade for sale in a market place. There is no extra value added to them by the producer.
Although the quality of the commodity varies from one producer to another, the definition of the main specifications of the commodity does not change much. For this reason; market prices of commodities of the same specifications also became the same.
Investors buy and sell commodities through futures contracts on exchanges. Exchanges standardize the quantity and the minimum quality of the commodity. As an example; a barrel of oil is basically the same product, regardless of the producer.
On the other hand, when technological products are taken into consideration as commodities, many more features should be stated at the board of trade. Commodities are generally raw materials for the production of more complex goods.
Nowadays, financial products such as foreign currencies and indexes are also considered as lately classified types of commodities.
Commodities can be bought or sold directly in cash (market) by traders. A futures contract is operative during the purchasing process of a commodity which standardizes the amazon and the properties of the commodity to be traded.
Types of commodity traders: