How to Trade Commodities

It is generally thought that commodities trading began as far back as 6,000 years ago in China, with the trading of future rice crops. Many countries throughout the millennia have gone to war over commodities, as their nations sought out precious resources from foreign lands. Today, commodities markets are governed by a wealth of supply and demand factors, which affect their value. Consider the oil price slump that began in late 2014 as a case in point. For Western nations, the price of crude oil is particularly important, and this is reflected in the energy sector of international stock exchanges. As the price of commodities like crude oil increases, the oil rich countries producing this commodity benefit. Conversely, falling crude oil prices negatively impact the fortunes of oil producing companies. Price volatility is further hampered by natural phenomena, geopolitical factors and technological innovation. There are essentially four categories of commodities available: agricultural commodities, livestock & meat commodities, metals, and energy. Agricultural commodities include the likes of rice, corn, cocoa, coffee, sugar and cotton. Livestock and meat include feeder cattle, pork bellies, live cattle and lean hogs; metals include platinum, gold, silver and copper; and energy commodities include gasoline, heating oil, crude oil and natural gas. Owing to the widespread disparities in quality among commodities, there has to be a standardization method for the purposes of ensuring that all the available commodities meet the same high quality standards. We can further divide up commodities into soft commodities such as agricultural produce and hard commodities such as crude oil and natural gas. Nowadays, many commodities traders do not typically take physical delivery of the commodities that they trade.