Investing in Commodities
So you're ready to invest in commodities - what should you know before investing?
Trading commodities predates stocks and bonds by many centuries as merchants would meet along trade routes (such as the Silk Road) to exchange agricultural and craft products.
Just like stocks and bonds, commodities are one of the major asset classes. However, these assets are tangible - generally coming from the earth and used as raw materials for further manufacturing activities. They possess uniform characteristics, are produced in large quantities and come from many different sources around the world.
Commodities can be grouped into three sub categories: agricultural, energy and metals.
Agricultural commodities include corn (an important source of food for humans and livestock), soybeans (a byproduct for making bread and pastries) and wheat (one of the most important food crops).
Energy commodities include crude oil (fuel to keep our lives moving), natural gas (used to keep our lives lit) and gasoline (which drives the global supply chain).
Metals are not only used for luxury products like jewellery but copper is widely used as a conductor of electricity, and has especially become important in the highly-demanded semiconductor industry.
Commodities can be traded on commodities exchanges, just like stocks are traded on stock exchanges. Examples of commodities exchanges include the New York Mercantile Exchange (NYMEX) and the Chicago Board of Options Exchange (CBOE). Investors can also gain indirect exposure to commodities by investing in stocks, ETFs and mutual funds.