What is a commodity
A commodity is a basic raw material, such as oil, gold or wheat, that is traded in standard units, so that one unit of a given grade can be swapped for any other unit of the same grade.
That interchangeability is called fungibility. A buyer of crude oil of a set grade does not care which producer supplied it. The buyer cares about price, quantity and delivery terms.
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Types of commodities
| Group | Examples | Common label |
|---|---|---|
| Energy | Crude oil, natural gas, heating oil | Hard |
| Precious metals | Gold, silver, platinum | Hard |
| Industrial metals | Copper, aluminium, zinc | Hard |
| Grains and oilseeds | Wheat, corn, soybeans | Soft / agricultural |
| Softs | Cotton, sugar, coffee, cocoa | Soft |
| Livestock | Cattle, hogs | Agricultural |
Hard commodities are mined or extracted. Soft commodities are grown or raised. Weather, harvests, storage and transport affect soft commodities more directly.
Formal definition and edge cases
In exchange terms, a commodity is a good with a published contract specification. The specification sets the grade, the contract size, the delivery location, the delivery months and the price quotation unit. Futures, forwards and CFDs are derivatives whose value is based on that good.
Edge cases:
- Gold is a commodity, but it also behaves like a monetary reserve asset. See Gold.
- Electricity is traded as a commodity even though it is hard to store, so its prices behave differently from metals.
- Currencies and stock indices are not commodities, even though they are traded on similar platforms.
- Crypto assets are classified differently from one country to another, so treat them as a separate asset class.
- In business, a "commoditised" product is one where brands no longer matter and buyers choose on price alone.
Worked example (hypothetical)
Suppose an exchange lists a crude oil futures contract. Its specification fixes how many barrels each contract covers.
- Value of a price move per contract = price change per barrel × barrels per contract.
- A trader holding several contracts multiplies that result by the number of contracts.
With a CFD on oil or on XAUUSD, the same logic applies, with the broker's contract size used in place of the exchange's. To see this with real figures, enter a price change and position size in the trading calculators.
Leveraged commodity positions can lose money fast. A small price move against you is multiplied by the full contract size, not by the margin you posted.
Where you see the term
- Platforms: MT4 and MT5 often group symbols under folders such as "Metals" or "Energies". See Metals and Energies.
- Reports and news: inventory reports, harvest estimates and producer decisions are reported as "commodity news".
- Futures pricing: you will see terms such as contango, backwardation, front month and futures roll.
Commodity trading in Pakistan
The supervisor is the Securities and Exchange Commission of Pakistan (SECP), with trading in listed securities and commodities only via SECP-licensed securities and futures brokers. Also, per the SECP, lists of licensed brokers are on the PSX and PMEX websites. For the wider legal picture, see Regulation and Safety.
Related terms
Frequent questions
What is a commodity in simple words?
A raw material, such as oil, metal or grain, that is traded in standard units and grades.
What are the main types of commodities?
Energy, metals and agricultural goods. They are often split into hard commodities (mined) and soft commodities (grown).
Is gold a commodity or a currency?
Gold is traded as a commodity. Many traders also treat it as a store of value.
Do I receive the physical goods when I trade a commodity CFD?
No. A CFD is settled in cash. Some exchange futures can end in physical delivery, depending on the contract specification.
Why do commodity futures have different prices for different months?
Storage, financing costs and expected supply differ by delivery month. Contango and backwardation describe this pattern.