Commodities are basic physical goods used by households and businesses, including energy products, metals, and agricultural materials. Unlike a share of stock, a commodity is ultimately tied to a physical product that must be produced, moved, stored, or consumed.
How it works
Commodity prices are shaped by both physical fundamentals and financial trading. Production, inventories, transport constraints, weather, policy, and demand all affect the amount of material available to buyers.
Many commodities trade through spot markets and futures contracts. The futures price is not simply a prediction of the future spot price; storage, financing, convenience, and supply conditions also matter.
Why it matters
Commodities often transmit geopolitical and macroeconomic shocks into inflation, company costs, trade balances, and consumer prices.
For investors, the key difference from stocks is that physical constraints matter. A port closure, refinery outage, crop failure, or inventory draw can change the market even when corporate earnings are irrelevant.
A simple market example
If a major oil shipping route is disrupted, crude prices may react because fewer barrels can reach buyers on time. Whether the move lasts depends on inventories, alternative routes, spare capacity, and demand.
Common mistakes
Treating every commodity as if it responds to the same drivers. Oil, gold, copper, and wheat have different supply chains and demand bases.
Assuming a dramatic headline automatically creates a physical shortage. The market still needs evidence about actual flows and buffers.
Frequently asked questions
Are commodities the same as futures?
No. A commodity is the underlying physical good; a futures contract is one way to trade exposure to it.
Why are commodity prices volatile?
Physical supply can adjust slowly while demand and expectations can change quickly, creating sharp price moves.
Which commodities are most sensitive to geopolitics?
Energy products are often highly sensitive because production and shipping are geographically concentrated, but the answer depends on the event.
Educational content only. Definitions describe common market usage and may vary by jurisdiction, instrument, or institution.