Commodities

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Commodities are negotiable goods or securities. In the context of the financial industry, the term "commodity" was the general descriptor for any physical goods, financial instruments (such as bonds, currencies and interest rate measurements) and artificial indexes traded in a standardized manner on an established futures exchange. [1]

Not too many years ago, products traded on a futures market were lumped under the commodity header. Most commodity futures, until the mid-1970s were, indeed, commodities that one could see and touch. In recent years, despite the fact that futures transactions work the same no matter the product being traded, a distinction has been drawn between physical commodities like grains and livestock, and interest rate, foreign currency, stock index and "financial futures." Nevertheless, the interaction between buyer and seller, whether an exchange offering is tagged as a "commodity" or a "financial instrument," is the same in the futures market. Delivery does differ, however, as some futures contracts are physically delivered and others are cash settled.

While paper clips and bark mulch might be considered negotiable commodities, the lack of a central, regulated marketplace for such items would exclude them from being called a "commodity" in the stricter financial arena.

Market News

In December of 2010, the commodity markets were reportedly in backwardation markets, which was beneficial for commodity traders. Investors sell low and buy high when replacing expiring futures contracts with later dated ones and this eats at returns in opposite market conditions, called contango. [2]

References

  1. Commodity Definition. Investorwords.
  2. Commodities go backwards to the futures. FT.