Commodity Trading

DEFINITION Commodities trading is a sophisticated form of investing. It is similar to stock trading but instead of buying and selling shares of companies, an investor buys and sells commodities. Like stocks, commodities are traded on exchanges where buyers and sellers can work together to either get the products they need or to make a profit from the fluctuating prices.

Commodities are products that are found naturally or are grown. Gold, cattle, platinum, wheat, cotton, orange juice, oil, sugar are all commodities. Commodities are part of the national and international marketplace. The products are traded on exchanges, and the prices are based on supply and demand. Many industries need commodities to run their business and buy and sell commodities in the marketplace. For example, clothing manufacturers need cotton, builders need lumber. Investors (individuals or companies like mutual funds) can profit from the changing prices of commodities if they predict the direction of the prices, either up or down. There are a few ways to trade commodities. Futures (for future delivery) are contracts to buy or sell commodities at a specific price. Options are buying the right to buy or sell a commodity at a specific price and date.

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