The Definition of a Commodity

Trying to understand a commodity definition can be challenging without the proper context. In order to invest in commodities, you need to first understand what a commodity is and how it affects you as an individual. Here are the basics of the definition of a commodity.

Commodities

In order for something to be qualified as a commodity, it has to meet certain criteria. A commodity is a good that is produced or sold by many different companies or countries. In addition to being sold by many different entities, it also has to be indistinguishable from the product of another company or country. Therefore, you should not be able to tell one sample of a commodity from another.

For example, wheat is a commodity. When looking at wheat, you cannot tell whether it was grown in the United States or in China. Therefore, this classifies as a commodity. A product, on the other hand, can be distinguished from other similar products. For example, if you look at a pair of sunglasses, you can easily tell one from another by the brand name on the side of sunglasses.

There are many different things that would qualify as commodities. Some common examples are corn, wheat, soybeans, gold, and oil.

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