Investors can also invest through the use of futures contracts or exchange-traded products (ETPs) that directly track a specific commodity index.
A commodity is a raw good used in business. Each commodity, when traded on an exchange, must meet standards and grades. They may each be slightly different, however, ultimately are the same amongst all producers. There are two different kinds of commodities, soft and hard:
Soft commodities – This refers to items that are grown as opposed to mined. For example, agricultural products such as sugar, corn, wheat, coffee and more. Produced by farmers, these instruments are highly sensitive to climate and weather changes, and have cyclical price patterns dictated by seasons.
Hard commodities – This refers to items that are mined, such as Gold, other precious metals, diamonds and oil, along with other energy products.