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A commodity is an economic good or service that has full or substantial fungibility that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them. The price of a commodity good is typically determined as a function of its market as a whole well-established physical commodities have actively traded spot and derivative markets. As society developed, people found that they could trade goods and services for other goods and services. At this stage, these goods and services became "commodities”, commodities is an important way to diversify a portfolio beyond traditional securities either for the long term or as a place to park cash during unusually volatile or bearish stock markets, as commodities traditionally move in opposition to stocks.Basic economic principles of supply and demand typically drive the commodities markets, lower supply drives up demand, which equals higher prices, and vice versa. Major disruptions in supply, such as a widespread health scare among cattle, might lead to a spike in the generally stable and predictable demand for livestock. On the demand side, global economic development and technological advances often have a less dramatic, but important effect on prices. Case in point, the emergence of China and India as significant manufacturing players has contributed to the declining availability of industrial metals, such as steel, for the rest of the world.
Today, tradable commodities fall into the following four categories:
* Metals (such as gold, silver, platinum, and copper).
* Energy (such as crude oil, heating oil, natural gas, and gasoline).
* Livestock and meat (including lean hogs, pork bellies, live cattle, and feeder cattle).
* Agricultural (including corn, soybeans, wheat, rice, cocoa, coffee, cotton, and sugar).
Volatile or bearish stock markets typically find scared investors scrambling to transfer money to precious metals such as gold, which has historically been viewed as a reliable, dependable metal with conveyable value. Precious metals can also be used as a hedge against high inflation or periods of currency devaluation. Each commodity contract requires a different minimum deposit and the value of your account will increase or decrease with the value of the contract. If the value of the contract decreases, you will be subject to a margin call and will be required to place more money into your account to keep the position open. Due to the huge amounts of leverage, small pric movements can mean large returns or losses, and a futures account can be wiped out or doubled in a matter of minutes.
* It's a pure-play on the underlying commodity.
* Leverage allows for big profits if you are on the right side of the trade.
* Minimum-deposit accounts control full-size contracts that you would normally not be able to afford.
* You can go long or short easily.