Commodity market is a place where transaction of business occurs between all kinds of commodities. Initially commodity market only dealt with agricultural products like wheat, coffee, sugar, cocoa etc. which was affecting the local market. But when big corporate houses, industries started taking interest in commodity field intense competition has paved way for commodity market.
Commodity markets deal in metal and non metal products like gold, silver, zinc, copper, nickel, crude oil etc. These products are being traded in international market as well. Commodity markets include physical as well as derivative trading using spot prices, forwards, futures and options.
Investment in commodity can be done by buying future contracts. The market uses a future contract to make an agreement for buying and selling of a certain product at a set price. This price is entirely based on future assumption. However future contracts are not available for all the products. Big financial houses trade in commodity market at a large scale because of which markets are very volatile. And sometimes it affects the local market and creates a scarcity of certain products. It is a worldwide market and all the powerful countries have their separate exchanges.
Having a diversified investment portfolio is a smart way of investment. This way, investors will not only minimize their losses but can multiply their profits manifold. For an investor it is very important for him to have a diversified portfolio in his baskets so that he can save himself from the fluctuations of the market.