Commodity
A standardised raw material or primary product that is traded in interchangeable units, such as gold, crude oil or cotton.
How it is identified
Test: units of the good are fungible against a published quality specification, so one unit is a perfect substitute for another
Unit
qualitative
In depth
Fungibility is what makes a commodity tradable on an exchange: because one lot meeting the specification is identical to another, contracts can be standardised and settled without inspecting the goods. Commodities generate no cash flow, so they cannot be valued by discounting earnings; their price is set by supply, demand, inventories and the cost of carry. In India they trade on the MCX and NCDEX under SEBI's supervision, mostly through futures rather than physical delivery. The common error is applying equity valuation tools to an asset that has no earnings to discount.
Worked example
A gold futures contract specifies purity and weight, so any bar meeting the specification settles the contract. That is why a buyer never inspects the metal before trading, and why price alone can move without any reference to a particular seller's inventory.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Commodity” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.