Short definition: Commodities are basic goods or raw materials that are interchangeable with other goods of the same type, primarily traded on the basis of their price rather than brand name or other differentiating factors.
Explanation: Commodities are typically produced in large quantities and have uniform quality standards, making them easily traded on global markets. They include agricultural products (like wheat, corn, and soybeans), energy resources (like crude oil and natural gas), metals (like gold, silver, and copper), and other raw materials (like cotton or lumber).
Example: A farmer selling corn to a grain elevator is trading a commodity. The price of the corn is determined by supply and demand in the global market, rather than the specific farmer or the location where it was grown.
Additional information (optional): Commodity prices can be volatile and influenced by various factors, including weather conditions, geopolitical events, and economic cycles. Investors and businesses often use commodities as a way to diversify their portfolios or hedge against inflation.