What is Commodity Market?
The commodity market is a physical or a virtual market place where market participants meet and buy or sell positions on commodity products like oil, gold, copper, silver, wheat, barley. Though started with Agri commodities initially, commodity markets today trade in all types of commodities like base metals – gold, silver, copper, infrastructure like oil, electricity, and even weather forecasts. There are about 50 major commodity exchanges worldwide which trade in more than 100 commodities.
The commodity market can be categorized under two major categories based on the type of commodity. These two categories are:
Hard Commodities
Hard commodities consist of the commodities that are required by the manufacturing industries. These should be mined and are manually extracted from the land or the ocean. They have limited reserves and are affected the most by the geopolitical and economic conditions. Possible examples of such types of commodities are Gold, Oil, silver, rubber, copper, etc. The major part of the pricing is because of the process that is carried out to extract them.
Soft Commodities
Soft commodities constitute the commodities that are mainly Agri related or livestock. Unlike hard commodities, they are not mined or extracted but are produced through proper procedures. They have virtually unlimited reserves and are not affected by geopolitical conditions but by the weather or by natural occurrences. Possible examples of such commodities are corn, wheat, barley, sugar, pork, coffee, tea, etc.