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Long before the stock market existed, commodities were bought and sold and not just to sustain life. Historically, investors, traders and merchants have taken speculative positions in these products. Simply put, a commodity is food, metal, or another fixed physical substance. In investing vernacular, a commodity is food, metal, or another fixed physical substance bought or sold for investment, usually via options or futures contracts . The trading of contracts for these items was also a way for farmers to manage the risks brought on by Mother Nature. The traditional argument for buying commodities has been that prices of raw materials do not run in synch with movements in the equity markets and therefore balance some of the volatility of an investor's stock holdings. More recently, commodities have been touted as a newly attractive asset class that is being driven by the growing power of China and its appetite to consume raw materials. As the world's sixth largest economy, China now accounts for between a fifth and a third of the world's consumption of alumina, iron ore, zinc, copper and stainless steel. China has already overtaken the USA as the largest consumer of iron ore, steel and copper.Investing in commodities is not typically for the greenhorn investor but it can be instrumental in diversifying a portfolio. Usually only the most seasoned investors trade in commodities. Commodities can usually be purchased through stock brokers or through a commodities brokerage. My suggestion is to go with an expert in the field--a commodities brokerage. Larger commodity brokerages with bigger orders will likely attract the bigger (and better) floor brokers. That means better and faster price fills for you. The volume of futures and options for commodities far exceeds the value of the actual physical products purchased. Commodities are most often bought and sold through commodity exchanges using options and futures contracts.
Additional commodities information can be found at:
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Commodities
