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What Are Commodities?



Stephen L. Thomas
By Stephen L. Thomas | November 2, 2023 | In

Commodities are raw materials used to create products and services. Another way to define commodities is that they’re economic goods that can be bought and sold. When trying to hedge against inflation, commodities can be a go-to investment. They’re also an asset that investors can use to diversify their portfolios. Investors can buy and sell commodities or alternatively, trade commodity derivatives – when an investor profits from commodities they don’t actually own – on a public exchange. How to Trade Commodities There are usually two types of people who invest in commodities. The first are individuals who need to use the commodity for production of a product or service. The second is an investor who wants to capitalize on commodity price increases. In terms of the latter, there are multiple ways to trade commodities but one of the most common is by futures contracts. Futures contracts are a legally binding agreement to buy or sell commodities at a specific time in the future. With futures contracts, investors are betting on what they think will be the future value of the commodities they’re trading. For instance,

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