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Investing 101: What is a commodity, and how is it used in the financial world?
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A commodity is simply a bulk good or raw material like metals, oil, cotton, or grain, but the term can also refer to financial products such as currency or stock and bond indexes.
The tangible commodities are bought and sold on the cash market, but they can also be traded through futures contracts on the futures exchanges.
There also exists a less expensive way to invest in the futures contracts of commodities through the purchase of options on those futures contracts. You can also invest in commodities through commodity funds (basically mutual funds focused solely on commodities).
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