What is a commodity?

Finance is all about making and managing money; it could be cash, debt or funding for a corporate house or various asset classes for an individual.

Commodity is any tangible good that has monetary utility. A commodity is an asset. There are two kinds of such goods – hard commodities such as zinc, coal, oil and gold and soft commodities like wheat, rice, pulses and tea, among others.

A commodity is thus a tool for creating wealth or an asset class. For example, a farmer grows wheat and sells it in the market to earn a living. This is personal finance as the farmer exchanges wheat (commodity) for money.

Most commodities are used to make other products or goods. Like coal is used to make electricity, oil is used to run vehicles and wheat is used to make biscuits and other products.

Likewise, a trading company may trade in commodities market. Like a normal market, the commodities market is a space where buyers and sellers come together to transact commodities for money.