Commodities are raw materials or primary agricultural products that can be bought and sold, such as grains, metals, energy resources, and other natural resources. They are typically standardized and interchangeable with other commodities of the same type, making them essential building blocks for various industries and essential for global trade. Commodities can be categorized into several broad groups:

1. Agricultural Commodities: These include crops and livestock products, such as wheat, corn, soybeans, coffee, sugar, cotton, cattle, and hogs. Agricultural commodities are vital for food production and have a significant impact on global food prices.

2. Metals: Metals are divided into two categories:

   • These include gold, silver, platinum, and palladium. Precious metals are often used as stores of value and for jewelry.Precious Metals:
   • Base Metals: Base metals include copper, aluminum, nickel, and zinc, among others. They are essential for various industrial applications, including construction and manufacturing.

3. Energy Commodities: Energy commodities encompass various forms of energy sources:

   • The most traded commodity globally, used in the production of gasoline, diesel, jet fuel, and various other petrochemical products.Crude Oil:
   • Natural Gas: Used for heating, electricity generation, and as a fuel source for vehicles.
   • Coal: Primarily used for electricity generation and steel production.

4. Soft Commodities: These include commodities that are grown rather than mined. Examples include coffee, cocoa, sugar, cotton, and rubber.

5. Hard Commodities: Hard commodities are typically extracted from the Earth and include metals, energy resources, and minerals like iron ore.

6. Livestock: Apart from agricultural crops, livestock such as cattle, hogs, and poultry are also considered commodities due to their importance in the food industry.

Commodities markets serve several important functions:

1. Price Discovery: Commodities markets provide a platform for buyers and sellers to determine the market price of various commodities based on supply and demand dynamics.

2. Risk Management: Participants in the commodities market, including producers and consumers, use futures contracts to hedge against price volatility. This allows them to protect against adverse price movements.

3. Investment: Investors can gain exposure to commodities through various investment vehicles, including commodity futures, exchange-traded funds (ETFs), and commodity mutual funds. Investing in commodities can provide portfolio diversification and a hedge against inflation.

4. Global Trade: Commodities are fundamental to international trade. Countries often export their surplus commodities to generate revenue and import necessary commodities they lack.

5. Economic Indicator: Commodity prices are closely monitored as they can serve as indicators of overall economic health. Rising commodity prices may signal inflation or increased demand for raw materials.

Commodities trading occurs on various exchanges worldwide, with some of the most prominent being the Chicago Mercantile Exchange (CME) for agricultural and financial commodities, the London Metal Exchange (LME) for metals, and the Intercontinental Exchange (ICE) for energy commodities.

It's important to note that commodities markets can be influenced by factors such as weather conditions, geopolitical events, supply disruptions, and changes in demand patterns. As a result, commodity prices can be highly volatile, making them attractive to speculators and traders but also posing risks to investors and businesses that rely on these raw materials.