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Finance: What Is a Commodity?

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In finance, a commodity is defined as a basic good that is used in commerce that is essentially interchangeable with other assets of the same type. Traditional examples include gold, oil, grains, natural gas and beef, as these are likely to be of much the same standard no matter which producer they come from. By contrast, the features and qualities of products in markets such as electronics may vary drastically between producers.

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Finance: What Is a Commodity?

  1. 1. FINANCE: WHAT IS A�COMMODITY?
  2. 2. 2 I Lenn Mayhew Lewis FINANCE: WHAT IS A�COM- MODITY? In finance, a commodity is defined as a basic good that is used in commerce that is essentially interchangeable with other assets of the same type. Traditional examples include gold, oil, grains, natural gas and beef, as these are likely to be of much the same standard no matter which producer they come from. By contrast, the features and qualities of products in markets such as electronics may vary drastically between producers.
  3. 3. Lenn Mayhew Lewis I 3 NEW TYPES OF COMMODITIES In recent times the assets included in the commodities class have expanded to include things such as bandwidth or mobile phone minutes, and financial products such as foreign indexes and currencies. When commodities are ex- change-traded, they are required to meet what is known as a basis grade or specified minimum quality standard. FUTURES MARKETS Commodities are traded on the futures market in two ways. Producers and buyers of physical commodities can use fu- tures trading to hedge against risk, while speculators simply gamble on making a profit from price movements that are often volatile, with no intention of making the commodity or taking delivery of it.
  4. 4. You can read about advances in the commodities market by visiting the blog of Lenn Mayhew Lewis, director of Core Capital Advisors.

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