What is commodity market answer?

A commodity market is where you can buy and sell goods taken from the earth , from cattle to gold, oil to oranges, and orange juice to wheat. Commodities can be turned into products like baked goods, gasoline, or high-end jewelry, which in turn are bought and sold by consumers and other businesses.

What describes the commodity market?

A commodity market is a market that trades in the primary economic sector rather than manufactured products, such as cocoa, fruit and sugar. Hard commodities are mined, such as gold and oil. Futures contracts are the oldest way of investing in commodities.

What is commodity market in easy language?

Key Takeaways. A market is where buyers and sellers can meet to facilitate the exchange or transaction of goods and services . Markets can be physical, like a retail outlet, or virtual, like an e-retailer. Other examples include illegal markets, auction markets, and financial markets.

What is the definition of a commodity?

Commodities are raw materials used to manufacture consumer products . They are inputs in the production of other goods and services, rather than finished goods sold to consumers. In commerce, commodities are basic resources that are interchangeable with other goods of the same type.

What are examples of commodities?

Commodities are tangible raw materials that can be traded and exchanged for other similar basic goods. Some common examples are crude oil, corn and cattle. Commodities are usually interchangeable regardless of producer. Commodities are often split into two categories: hard and soft.

Why is the commodity market important?

This helps to reduce price disparities and promote efficient price discovery . Overall, commodity markets in India play a crucial role in ensuring the smooth functioning of the agricultural and industrial sectors by providing price discovery, risk management, financing, and market integration.

What are the main characteristics of a commodity market?

These characteristics are hom*ogeneity, price fluctuations, open supply, and durability . The commodity market stocks differs from money markets in terms of the underlying instrument; the underlying concepts of trading are pretty much the same. The concept of spot price. read more, future price, expiry, and strike price.

What are the three types of commodities?

There are three major types of commodities; agriculture, energy, and metals . These three are differentiated in the means of accessing them. The means of accessing them is based on whether they are hard or soft.

What is the difference between a commodity and a stock?

Stock markets are primarily for investing in company shares, aiming for capital gains and dividends. Commodity markets, on the other hand, serve the primary purpose of trading physical resources like iron, wheat, gold, etc. Investors use commodities to hedge against price fluctuations and diversify their portfolios.

Is commodity a type of money?

Throughout history, money has come in many different forms. Most early money systems were based upon a commodity, or valuable good. Commodities are basic goods used by almost everyone . A commodity money system is based upon goods that would have value even if they were not being used as money.

What is a commodity quizlet?

Commodity. A raw material or primary agricultural product that can be bought and sold , such as copper or coffee. Consumer.

What is a commodity vs a stock?

Stock markets are primarily for investing in company shares, aiming for capital gains and dividends. Commodity markets, on the other hand, serve the primary purpose of trading physical resources like iron, wheat, gold, etc. Investors use commodities to hedge against price fluctuations and diversify their portfolios.

What is Commodity Market? (2024)

TABLE OF CONTENT

Types of Commodities in the Market
How Many Exchanges Are Available In The Commodity Market of India?
Participants of Commodity Market
Why Invest in the Commodity Market?

What is Commodity Market?

A commodity market is a marketplace where investors trade several commodities like spices, energy, precious metals, crude oil within a country.
In recent times, the Forward Market of Commissions allowed around 120 commodities to perform future trading within India.
Investors who is focusing on diversifying their portfolio can invest in both perishable and non-perishable products.
It will help all the investors face lesser risks and provide a boundary against the growing inflation rate in the country.

Types of Commodities in the Market

Commodities are divided into two different categories: hard and soft commodities.

Hard Commodities

Hard commodities consist of natural resources that is mined or extracted. The hard commodities are classified into two categories:

1) Metals – Gold, Silver, Zinc, Copper, Platinum

2) Energy – Natural gas, Crude oil, gasoline, heating oil

Soft Commodities

Soft commodities refer to those commodities that are grown and cared for rather than extracted or mined. The soft commodities are classified into two categories:

1) Agriculture – Rice, Corn, Wheat, Cotton, Soybean, Coffee, Salt, Sugar

2) Livestock and meat – Feeder cattle, live cattle, Egg

How Many Exchanges Are Available In The Commodity Market of India?

India has 22 different commodity exchanges that have been formed under the Forward Markets Commission. There are 4 popular commodity exchanges for trading in India:

1) Indian Commodity Exchange (ICEX)
2) National Multi Commodity Exchange of India (NMCE)
3) Multi Commodity Exchange of India (MCX)
4) National Commodity and Derivative Exchange (NCDEX)

Participants of Commodity Market

There are two major participants in the commodity market:

Speculators

Speculators are traders in the commodity market that continuously check the price of commodities and tell the future price movement.
If they expect the price to go upwards, they buy a commodity contract and instantly sell them as soon as the price goes upwards.
Similarly, if they expect the price to go downwards, they sell their commodity contracts and buy back when the price falls.
The primary intention of every speculator is to learn a large amount of profit in any type of market.

Hedgers

Hedgers are normally manufacturers and producers who protect themselves from the risk by using the commodity futures market.
Let us understand with the help of an example:
If a farmer expects that there will be fluctuations in the price during crop harvesting, he can hedge his position. To protect himself from the risk, he will enter into the futures contract.
If the crop price goes down in the market, the farmer can compensate for all the loss and by booking profits in the future market.
Similarly, if the price of crops goes up during crop harvesting, the farmer can suffer from a loss in the future market, and he can repay it by selling his crop at a higher price in the local market.

Why Invest in the Commodity Market?

Investing in the commodities market has some advantages and disadvantages. Let us look at the advantages first:

Advantages

Diversification

The performance of the commodity market is inverse as compared to the returns of stocks and bonds. Therefore, investing a small percentage of your funds into the commodities market is beneficial to several individuals.
It will help them achieve a high return on investment even if stock prices have a downward trend. This helps them to compensate for negative or lower profits generated mainly by the capital sector.

Margin Trading

Compared to bond and stock market dealings, commodity brokers offer a lower margin in terms of trading.
It grants brokers to trade on borrowed funds that allow both the speculators and hedgers to profit from each transaction.
While commodity traders can benefit from bulk orders by promising repayment later, thus helping speculators to earn higher returns from such investments.

Real Returns

As per the economic and capital market conditions, specific goods are stable, while several commodities tend to remain volatile due to economic and capital market conditions.
A real example of commodities being volatile is crude oil. Its price does not remain stable due to large fluctuations in supply, mining problems, or economic conditions.
Stockholders invest in such commodities to book profit even there the trade is volatile and attain a long or short position as per their prediction towards the market.

Disadvantages

Limited Returns

Commodity investments only aim to accumulate capital profit, whereas stock and bond markets have periodic payouts such as coupon, payments and dividend coupons.
However, real expertise is required in the commodity market to gain high returns. Individuals can trade via any established commodity exchange by registering with a particular commodity broker.

High Risk

The commodity market is really volatile, and any changes in the demand or productive capacity can badly hurt the prices.
Due to such high volatility, the prices cannot remain stable, thus causing investors to lose high returns.
Hence individual dealing in the commodity market should be well versed with internal and external factors such as the internal working of the company or international trade before selecting to trade in commodities.
Also, an individual must keep the supply and demand patterns to lessen the further risk.

FAQS

What is Commodity Market in simple words?

A commodity market is a marketplace where investors trade several commodities like spices, energy, precious metals, crude oil within a country.

What does speculators mean in the commodity market?

Speculators are traders in the commodity market that continuously check the price of commodities and tell the future price movement.

What does hedger mean in the commodity market?

Hedgers are normally manufacturers and producers who protect themselves from the risk by using the commodity futures market.

How many exchanges are available in the commodity market of India?

There are 4 popular commodity exchanges for trading in India:
1) Indian Commodity Exchange (ICEX)
2) National Multi Commodity Exchange of India (NMCE)
3) Multi Commodity Exchange of India (MCX)
4) National Commodity and Derivative Exchange (NCDEX)

How many types of commodities are there in the market?

There are two types of commodities in the market; hard and soft commodities. Hard commodities consist of natural resources that is mined or extracted. While, soft commodities refer to those commodities that are grown and cared for rather than extracted or mined.