A
commodity market is a market that trades in primary
economic sector rather than manufactured products.
Soft commodities are agricultural products such as
wheat,
coffee,
cocoa and
sugar. Hard commodities are mined, such as
gold and
oil. Investors access about 50 major commodity markets worldwide with purely financial transactions increasingly outnumbering physical trades in which goods are delivered.
Futures contracts are the oldest way of investing in commodities. Futures are secured by physical assets. Commodity markets can include physical trading and derivatives trading using
spot prices,
forwards,
futures, and
options on futures. Farmers have used a simple form of derivative trading in the commodity market for centuries for price risk management.