Commodity
A commodity is something that is bought or sold in commerce but has no measure of differentiation.
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Expanded Definition
A commodity is a basic ingredient, a building block used in the production of other goods and services. There's wheat and cotton and pork bellies. Gold, silver, and copper are a few of the metals traded as commodities. Oil and natural gas are in the energy category. Commodities are interchangeable in terms of quantity and quality: A barrel of oil is a barrel of oil; a bushel of wheat from Kansas is the same as a bushel of wheat from Montana. (Although no one buys or sells anything as paltry as a bushel.) Standards of quality and quantity are ensured via rules set by the federal government and the individual commodities trading exchanges -- such as the Chicago Board of Trade and the New York Mercantile Exchange.
Water is a commodity in the traditional sense of the word, but is not traded on commodities exchanges ... yet.
Trading in commodities is not for the inexperienced or investors with a low tolerance for risk. Commodities can be traded in spot markets, but are more commonly traded as futures. The spot market is a cash-and-carry sort of operation. The futures market involves trading contracts that specify the date for delivery of a certain amount of a commodity and the price that will be paid. Someone who has no use for 15,000 bushels of wheat could still be a player trying to make money by buying and selling wheat futures at opportune times as others try to lock in good prices.
Commodity moves have a typical pattern: Demand for, say, corn rises, as ethanol becomes popular. Farmers plant more and more. Then there's an oversupply. So the plantings decrease, and there could be a shortage.
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