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Home » Investment Planning » Learn to Invest » Commodity Investment

Commodity Investment


A market that transacts business with commodities of all nature referred as commodity markets. Commodity market was initially meant only for agricultural products and that too in the local market. Industrializations, globalizations, technological advancements, increasing demand from consumers and intense competition from other players has paved way for commodity markets to cross boundaries and break barriers with regards to the commodity traded.

As the markets have grown, new investors have been attracted to commodities, with increased interest from pension funds, high net worth individuals and even some retail investors. Most commentators expect investment from pension funds to continue growing and most of that money to flow into index funds. Unlike previous cyclical bouts of investment we expect much of this money to stay.

Commodity markets deal in the trade of commodities like gold, cotton, crude oil, orange juice etc. Many items both perishable non perishable, finished goods, raw materials and semi finished goods will be traded in this market at the international level. Commodity market does not necessarily require you to buy or sell the commodities but you can even exchange them.

Commodity market works on certain principles. Firstly the trading has to be done only for standard products. Secondly the transaction takes place through a future contract. According to this contract the commodities will be sold or bought on a future date. However the price at which they are sold will be the price agreed during the contract.Similarly commodity marketing also makes use of another type of contract called spot contract. In this contract the goods are to be transferred as soon as the contract is made. However it has also been argued that the purpose of a spot contract is to exercisea future contact in due course of time. Some of the commodities investing market are commodity food market, commodity petroleum market and commodity fund investing.

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Keywords:

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