What Are Commodities?

What this unit covers

Meet commodities: standardized, interchangeable raw materials and farm products traded on an exchange, the first new asset class after shares, bonds and equity derivatives.

By the end you will be able to

• Explain what a commodity is and how it differs from a share or a bond.
• Describe why standardization lets strangers trade a raw material on an exchange.
• Apply the question of paper claim versus physical thing to a new investment idea.

How it starts: A Number You Never Questioned

1. You check a share you own and its price for the day.
2. Nearby, a report shows crude oil traded at a fixed price too.
3. Can a barrel of oil be priced the same way a share is?

Words you will meet

Commodity

A raw material or farm product made uniform enough to trade on an exchange.

Standardization

Fixing the grade, quantity and quality of a good so every unit is the same.

Exchange

A regulated market where standardized units of a share or a commodity are bought and sold.

In this module: Commodity Markets

1. What Are Commodities? (this unit)
2. Energy, Metals & Agricultural Commodities
3. Supply, Demand & Global Cycles
4. Understanding MCX & Commodity Trading Basics