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While those of you who trade commodities may understand pricing and the underlying laws that govern change in the market, you may not understand how commodities are stored and the way in which supply and demand are managed.
Remember, commodities are tangible entities are grown are part of seasonal harvests, and when certain items are in excess supply, production may be restricted in order to maintain viable price points and the market’s equilibrium.
But what exactly are commodities, and how are they traded in the global financial marketplace? Let’s find out!
In simple terms, a commodity is a basic good or item that’s used in commerce and interchangeable with other goods of the same type.
Commodities are frequently used as inputs in the production of other goods and services, with the vast majority of examples considered to be raw materials that are utilised in the creation of food, jewellery and a raft of other products.
The best-known commodities include key agricultural products such as wheat and precious metals like gold, while oil is another popular option when trading commodities. When they’re traded on an exchange, commodities are also required to meet specified minimum standards, with this also referred to as a basis grade.
There are many different types of commodities, and as we’ve already touched on, some of these are more widely traded than others.
We’ve listed the top five below, based on current and historic trends and wider demand within the financial marketplace.
We started by talking about the delicate relationship that exists between supply and demand in the commodities market, with this best embodied by oil’s price fluctuations since 2012 (and indeed, throughout history).
Ultimately, the supply and production of commodities like oil is controlled in line with demand, whether this is slashed or ramped up line with demand. In the oil market, the OPEC nations are responsible for stabilising price points, usually by agreeing production caps based on global demand trends.
Conversely, the current market is seeing prices soar as the supply is capped. In this case, pricing needs to be managed and agreed by all OPEC nations if stability is to be maintained over time.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.