Understanding the Commodity Market

How Commodity Trading Works

Assets known as commodities represent essential raw materials for various economic sectors. Unlike traditional retail, the trading of these resources occurs on a wholesale scale, involving significant volumes. Transactions can happen physically, but in modern practice, most commodity trading is conducted through futures contracts. In these contracts, the parties agree in advance to buy or sell a specific asset at an agreed-upon price on a predetermined future date.

Classification of Commodities: Hard or Soft

The world of commodities is divided into two main categories. Hard commodities include natural resources that require mining or extraction processes to obtain. Soft commodities, on the other hand, come from the agricultural or livestock sectors and do not require mineral extraction.

Practical Examples of Each Category

Mineral-Origin Resources (Hard Commodities): Energy is one of the most important, including crude oil and natural gas. Additionally, basic raw materials such as gold, silver, copper, and aluminum also fall into this category, representing high circulation in global markets.

Agricultural Sector Products (Soft Commodities): Sugar, corn, coffee, and other agricultural products form the core of this classification. Similarly, livestock contributes with cattle, milk, and beef, meeting the constant demand of the international market.

Commodity trading remains essential for the functioning of the global economy, connecting producers and consumers through sophisticated trading mechanisms.