What are Commodities?

What are Commodities?

You’ve probably heard the term “hot commodity” before … But do you know what commodities actually are and what they have to do with the world of finance?

Unlike stocks, commodities aren’t dependent on a single company or sector. Rather, they represent raw materials or agricultural products.

Like stocks, commodity prices can rise and fall based on external factors. It’s these price fluctuations that make them an appealing prospect to many investors.

Curious to learn more about commodities and how they could figure into your own investment strategy? Read on to learn what commodities are and how fractalerts can help you find some of the most promising commodities trading opportunities!

What are Commodities?

An easy way to think of commodities is to think of them as raw materials.

These are materials that might be used for other types of production. There might be all sorts of slight variations, but they’re inherently the same. We’re talking basic goods: gold, oil, grain … the list goes on.

There are two key types of commodities: hard commodities and soft commodities. Let’s explore:

Hard Vs. Soft Commodities

This might sound like a financial battle of the bands, but hard and soft commodities simply refer to how the commodity in question is sourced.

Hard commodities are resources that are extracted or mined.

Hard commodities are often broken down into two key sub-categories:

  • Metals: This includes metals like copper, gold, platinum, and silver.
  • Energy: This includes coal, electricity, gas, and oil.

Soft commodities are generally agricultural or living products.

Soft commodities are generally broken down into two key sub-categories:

  • Agricultural products / crops: This includes coffee, cotton, grains, sugar, soybeans …
  • Livestock: This includes live cattle, feeder cattle, and animal products from hides to meat.

A Brief History of Commodities Trading

Commodities trading actually predates the stock market. In ancient times, people would trade everything from spices to leather to rice. It was a vital trade to keep the economy and cities and towns going.

Commodities played a role in allowing market exchange, commerce, economic development … and even created a means for taxation by the government. Commodities might seem simple now, but they actually have had the power to make or break great empires over time!

Here’s a fun little aside about an early commodities trader… Once upon a time in the 18th century, there was a rice trader in Japan named Munehisa Homma. It’s been said that he got ahead in the rice market by establishing lookouts at regular intervals between towns … This allowed him to quickly pass along word about the current market prices for rice, giving himself an edge in the market.

But that wasn’t the beginning and end of his story … This gentleman is also said to have been the inventor of the candlestick chart!

How’s that for a curious commodity connection?

Why Invest in Commodities?

It’s not too hard to understand what commodities are. A little trickier? Understanding why commodities are so appealing to investors. Here are some of the reasons why:

They’re always in demand. Whether hard or soft, commodities are typically part of everyday life. Just think about it. On any given day, you might roll out of bed and head straight for the coffee, have cereal for breakfast, wear leather shoes, and drive a car powered by gasoline. Right there, you’ve proven the constant demand and need for commodities!

In this way, commodities can be appealing, because there isn’t much chance that they’ll ever totally drop in demand.

Seasonal price trends. While the need for commodities won’t really go away, there can be a seasonal aspect that can create predictable spikes in the market at particular times of the year.

For instance, when more people are heating their houses in the winter, the price and demand for oil goes up. Savvy investors can take advantage of these swings and make commodities trades based on reliable seasonal variations.

Prices fluctuate based on global factors. Another way that investors will play the commodities market is to look for news that could impact commodities. For example, a drought could have a huge impact on grain crops, and this could create price fluctuations that could make for advantageous trades.

Commodities are an economic indicator. Certain commodities are viewed as an indicator of how well or poorly the economy is doing. For instance, gold prices reliably tend to go up during times of economic uncertainty. In this way, commodities can be used as a direct investment vehicle or an indirect source of information when considering other investments.

Commodities move in opposition to stocks. Traditionally, commodities tend to move in opposition to stocks. This can help balance out your portfolio, particularly during volatile market conditions.

Considerations with Commodities

It’s important to note that the basic principles of supply and demand govern how commodities are priced.

Say, for instance, there was a terrible rice blight that wiped out half the world’s rice crops. The demand for rice would likely remain constant, but the lower supply would mean that suddenly, rice would be at a premium. This would drive prices up.

It works the opposite way, too. Say for some reason there was a massive bumper crop of rice and suddenly the world had double the supply. The demand wouldn’t necessarily rise in direct proportion — and in that case, to keep product moving, prices would likely go down.

Those are dramatic examples, but there are really all sorts of things that could affect supply and demand. For instance, health scares, global development, and increasing technological advances could all play a role in the price of various commodities.

Trading Commodities

OK, so you’re curious about commodities … But how can you actually invest? There are a ton of ways to get involved with investing in commodities.  

Common ways of investing in commodities include futures, options, ETFs, and mutual funds … Some investors even play stocks that are commodity-heavy (for instance, a stock like Tiffany & Co. might fluctuate based on gold prices, or Starbucks might be affected by coffee prices).

But with the many methods of trading commodities available to you, finding the best trades and opportunities could prove challenging. Enter fractalerts.

fractalerts and Commodities

What if you could receive alerts about commodities trades that professionals intend to make, 12-24 hours before they execute?

It’s not a dream: commodities are one of the alerts offered by fractalerts, a unique proprietary system that helps find promising potential trades.

fractalerts isn’t solely based on hunches, market trends, or hot stocks. It’s based on mathematical calculations.

The fractalerts system is unique in that it sifts through mountains of data to calculate strong potential trades by finding patterns that would be extremely difficult for the average human to detect.

The alerts aren’t fickle. They’re devoid of emotions, a trader’s worst enemy … and the results are astounding. For the past 12 years, this system has been delivering incredible returns — up to 28.30% per week.

Another good thing to know? fractalerts tells you about actual trades. The alerts we send out are actual trades that we intend on executing, 12-24 hours in advance. This means that you have time to do your research and decide for yourself if the trade sounds good to you, too!

The Final Word on Commodities Trading

It’s not hard to see why commodities trading is so popular. Commodities offer plenty of chances to potentially build wealth, and they can add some great diversity to your portfolio.

However, it can be difficult to decide which direction to go with commodities trading. That’s where fractalerts comes in — our service can alert you to some of the most promising commodities trades so that you can be ahead of the curve!

Discover the system that fund managers and global banks have been using for 10+ years!

Our alerts are used by banks, fund managers and traders all over the world.
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