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Lesson 3: Kinds of Commodities

commodity, kinds of commodities, commodity for beginners

commodity, kinds of commodities, commodity for beginnersIn the previous article I have shown the aspects of the commodities, now we see all the main kinds of commodities treated and that we can trade every day. I start by saying that commodities are divided into two types:

1. Soft, such as wheat, coffee, sugar and even livestock, are those commodities more easily influenced by external factors, such as climate or epidemics, because of their tendency to deteriorate. The producers of these commodities are often involved in this kind of market, with interest to set the price of their product.

2. Hard, such as crude oil, gas, gold, copper, are materials that are extracted from the ground or produced by other natural resources. Even the hard commodities may be affected by external factors, although to a lesser degree than the soft commodities, such as strikes and wars.

More specifically, the principal commodities can be divided into five categories:

  • Grains: corn, wheat (in all its varieties: winter or spring, soft or hard), soybean, soybean meal, soybean oil, and oats.
  • Soft: cotton, cocoa, coffee, sugar, orange juice and lumber.
  • Meat: live cattle, feeder cattle and lean hogs.
  • Metals: gold, silver, platinum, palladium and copper.
  • Energy: crude oil, gasoline, heating oil and natural gas.

Even with the five categories listed above, we can diversify our portfolio, moving out on different sectors. We do not concentrate, so, the risk in a single investment, for example on grains, but on multiple sectors, such as energy and meat.

There are other categories and commodities that I have not listed, because, although investors expect a florid market in the coming years, they are not yet available all classical instruments needed to invest in these products. At the moment, they can be treated only by the Funds. An example is the ETFs on the water.

We are, therefore, coming to a general control of commodities through financial products.

Seasonalgo, seasonal trading, spread trading, commodity market

 

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