Commodities are the raw materials humans use to create a liveable world. It is the energy to sustain humanity, metals to build tools, and agricultural products to provide food. These — energy, metals, and agricultural products — are the three core classes of commodities, and they are the foundation of the global economy.
Commodities are characterised by the following qualities:
Tradability: A commodity has to be tradable. To put it simply, there needs to be a viable investment mechanism to help you trade it. For example, something is considered as commodity if it has a futures contract assigned to it on one of the major exchanges, or if a company processes it, or if there’s an Exchange-Trading Fund that tracks it.
Deliverability: All commodities have to be physically deliverable. Crude oil is considered to be deliverable since it can be delivered in barrels, and wheat because it can be delivered by the bushel.
Liquidity: By liquidity we mean that every commodity should have an active market with buyers and sellers constantly transacting with one another. This criterion is crucial to commodities, because it gives you the choice of getting in and out of an investment easily, since there is an established market with buyers and sellers for your securities.
No comments:
Post a Comment