There are many kinds of commodities in the world. Unlike brand name products, commodities are goods that have a universal price around the world. Gold, for example, has the same price per ounce in Brazil and Bombay, whereas the price of a toaster oven or even a T-shirt varies depending on the brand and the place in which it is sold. In commodity market two kinds of products are traded raw and primary products.
People invest in commodities because they make good and their value and importance remains for hundred years while stocks of a company may not exist till next month. Commodities can be of many types some important types are as shown below:
- Spot trading is a type of trading where delivery of commodity takes place immediately. Spot trading also involves visual inspection of the commodity trading.
- A forward contract is an agreement between two parties to exchange at some fixed future date a given quantity of a commodity for a price defined today. The fixed price today is known as the forward price.
- A futures contract is a type of commodity trading which is transacted through a futures exchange. Most of the forward contracts involves agricultural and food products for which we buy now and pay and deliver later.