What are commodities? Why are they called commodities?

Commodities are homogenized, tradable commodities that are widely used as basic raw materials for industry and can only be traded on legitimate commodity exchanges. Commodities can be broadly categorized into three main groups: energy commodities, metal commodities, and agricultural commodities.

One, what is bulk commodities

Bulk commodities are commodities that are homogenized, tradable, and widely used as basic raw materials for industry, and can only be traded on legitimate commodity exchanges. Commodities can be broadly divided into three categories: energy commodities, metal commodities and agricultural commodities:

1, energy and chemical products: crude oil, fuel oil, unleaded regular gasoline, propane, natural rubber, etc.;

2, metal products: gold, silver, copper, aluminum, lead, zinc, nickel, palladium, platinum;

3, agricultural (by-products): corn, soybeans, wheat, rice, oats, barley, rye, hogs, pigs, and so on.

3, agricultural (by-products): corn, soybeans, wheat, rice, oats, barley, rye, pork belly, live pigs, live cattle, calves, soybean meal, soybean oil, cocoa, coffee, cotton, wool, sugar, orange juice, canola oil, eggs, etc..

Two, commodities family learning

There are some financial investors should be clear that the vast majority of financial commodity prices are affected by the market and macro factors, commodities are considered to be affected by the deepest macro impact.

Influencing factors

The trend of commodity prices is mainly affected by the economic cycle, the supply and demand relationship between industries, and monetary policy. For example, when the macroeconomic fundamentals are strong, then the demand for copper, aluminum, lead, zinc and other industrial commodities and crude oil will be raised, which will benefit the relevant trading varieties.

Like the 2008 global financial crisis, CRB (Reuters Commodity Research Bureau) commodity price index should fall 24%; to 2009 and 2010, as the global authorities began to stimulate the economy and monetary release, the index rose by 36% and 23% respectively. The indiscriminate release of global money once again pushed up commodity prices.

Then again, China's supply-measurement reforms closed many coal and steel mills, shrinking production capacity, weakening the supply of coal, steel and non-ferrous metals, making the supply and demand of commodities increasingly tense, once triggered the A-share "coal fly" market. Of course, in addition to the macro level of the economic cycle, there is also involved in the micro level of supply and demand theory, the principle is the same, supply and demand determine the price, here will not repeat.

Commodity currencies

Commodities in fact, the link with foreign exchange is also very close, and foreign exchange is a country used to import commodities, over time, some of the major producers and exporters of commodities based on their own strengths and characteristics of the formation of the so-called commodity currencies.

Commodity currencies, in fact, is behind the physical (commodities) to support the currency, that is, the currency exchange rate of these countries with a high degree of correlation with a certain commodity, such as the Canadian dollar - crude oil, Australian dollar - minerals, South African rand - gold and so on. For example, South Africa is an important gold exporter, the South African rand over a long period of time and the trend of international gold fits well.

How to invest in commodities

Commodities and other investment varieties are a little different, the volume of trading, demand and supply of commodities are generally larger, so the commodity futures and spot market are commodity supply and demand for a wide range of participation in the transaction as a prerequisite for a wide range of full competition before the formation of the authority of the price.

In addition, commodities are also a standardized commodity, which corresponds to the futures contract stipulates the quality standards of delivery commodities, such as 1 lot of fuel oil 1804 contract corresponds to 50 tons of fuel oil. Precisely because commodities are mostly upstream industrial products, the futures and spot prices of their supply and demand conditions will directly affect the entire economic system, so commodity investment is trusted by many individual or institutional investors.

There are mainly three kinds of opportunities to participate in commodity investment:

1. Commodity Funds

We can often see funds in the market, such as the name of the gold ETF, XX Crude Oil, XX Commodity, XX Commodity ETF Linkage and Commodity QDII, etc., are all belong to the funds investing in the commodity market, as well as the last issue of the "Attention! These pits of precious metal finance must not be touched! (Gold)" mentioned the Shanghai Gold Exchange, Shanghai Futures Exchange metal T + D products, as well as the bank's commodity financial products.

These commodity ETFs (Exchange Traded Open Index Funds) invest in physical commodities and futures contracts through fund companies. The benefits of commodity ETFs are that they allow investors to trade in the commodity market without having to directly participate in it, facilitate subscription and redemption, have good liquidity, and are less risky than commodity futures, which is very suitable for the investment needs of ordinary people.

2, commodity spot

Commodity spot is mainly the enterprise through the electronic trading platform, the sale of products, procurement, complete the electronic purchase and sale contracts, receipt and payment of goods, and other work, and ultimately realize the effective delivery of goods.

The characteristics of spot commodity trading: two-way trading, hedging mechanism, up and down can make money, but also leverage mechanism, a small fight, amplify the capital trading.

3. Commodity futures

Commodity futures are standardized contracts for certain commodities such as cotton, soybeans and oil. The standardized agreement on the sale and purchase of a certain quantity of a physical commodity between the buyer and seller at an agreed date in the future (e.g., a 1-year contract, i.e., March 2019) at a price agreed upon at the time of signing (e.g., $3,000/metric ton).

The essence of the rise and fall of prices in commodity futures is gaming. And institutional investors tend to be in the commodity futures market, filling different roles as hedgers, arbitrageurs and speculators. China has seen many hedge funds turn to commodity futures after trading in stock index futures was restricted.

Ordinary investors can invest as long as they go to a futures company to open an account. But it should be noted that there are only three legal futures exchanges in China: the Shanghai Futures Exchange (trading copper, gold, aluminum, zinc, natural rubber, fuel oil, etc.); the Dalian Commodity Futures Exchange (trading soybeans, soybean oil, soybean meal, corn, palm oil, polyethylene, etc.); and the Zhengzhou Commodity Futures Exchange (trading barley, durum wheat, cotton, sugar, PTA, rapeseed oil, etc.).

So some of the so-called other exchanges, foreign markets, etc., but also need to be more mindful. And futures investment is essentially to obtain the spread for the purpose of speculative business, with leverage attributes, if encountered in the market drastic fluctuations, may cause great losses.