In brief, a commodity is any single and distinguishable consumer good that owners trade in large quantities on an exchange. The term refers to tangible products, such as oil, precious metals, and agricultural products, though the contemporary investment industry also includes such intangibles as bandwidth and foreign currencies. To qualify, a product must be usable on delivery and must conform to an industry standard.
A commodity must also have a sufficiently variable price to make market creation logical. This fluctuation in price means that many traders conduct their transactions on futures markets, which guarantees the trade of a commodity at a particular price on a particular date. Traders may also conduct transactions in the cash market, also called the spot market, which uses current pricing. Both types of trade are subject to the regulations of the Commodity Futures Trading Corporation, which follows legislation set forth in the Commodity Futures Modernization Act and the Commodity Exchange Act.
Futures and options trading involves risk of loss. Past performance is not indicative of future results. Only risk capital should be used.