Getting Started in Commodities

Chapter 1

What Is a Commodity

While this book covers a multitude of issues, it is designed to answer one central question: What is a commodity? This may seem like a difficult question to some people, but it's really quite simple. If you can touch it, see it, feel it, or eat it, it's a commodity. If you are driving through Texas and you see an oil field, there's a commodity being pumped out: oil. If you are cruising through miles of wheat fields in Kansas, then you are passing an agricultural commodity: wheat. If you are vacationing in Florida, you're sure to see fields filled with orange groves; once again, you are looking at a commodity: orange juice. Even when you find yourself in a jewelry store eyeing a beautiful gold chain, you are checking out a traded commodity: gold. Commodities are all around you, but not all commodities are traded.

Smart Trader Tip

The process of trading a commodity is done typically in a trading pit located at one of the major commodity exchanges or by computerized trading, one of the predominant means to trade commodities today. A trade occurs when a buyer of the commodity and the seller of the commodity agree on a price for that commodity based upon a standardized unit for the commodity being bought or sold.

Lumber, wheat, crude oil, heating oil, natural gas, corn, copper, gold, sugar, and coffee are just a few of the commodities you may come across ...