Commodity is a term for a basic good in commerce that can be exchanged with commodities of similar type. The most common form of commodities that are traded in the financial market includes grains, minerals and metals. However, the term is also used in finance to indicate products such as stock, currency or even bond indexes. Due to the advancement in technology, even electronic products such as cell phones minutes and bandwidth are traded in the modern market. The commodities must also meet certain basic standards also known as basis grade when are traded in the market. The process of selling and purchasing of commodities is carried out on the basis of future contracts on exchanges that establish the standard of minimum quality and quantity of the traded commodity. For example, according to the Chicago Board of Trade, the contract of one wheat is for five thousand bushels and also specifies the standard of wheat that can be used for customer satisfaction.

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Edited and Updated 31st May 2014

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