A commodity is a basic good used in commerce that is interchangeable with other goods of the same type. Commodities are most often used as inputs in the production of other goods or services. The quality of a given commodity may differ slightly, but it is essentially uniform across producers.

Key Takeaways:

• A commodity is a basic good used in commerce that is interchangeable with other commodities of the same type.

• Commodities are most often used as inputs in the production of other goods or services.

• Investors and traders can buy and sell commodities directly in the spot (cash) market or via derivatives such as futures and options.

• Owning commodities in a broader portfolio is encouraged as a hedge against inflation.