Commodity Trading

  • A commodity market is a market that trades in primary rather than manufactured products. Soft commodities are agricultural products such as wheat, coffee, cocoa and sugar. Hard commodities are mined, such as gold and oil
  • Commodity markets can include physical trading and derivatives trading using spot prices, forwards, futures, and options on futures. Farmers have used a simple form of derivative trading in the commodity market for centuries for price risk management
  • There is a huge difference in the trading volume of commodities and the actual value of the commodities in physical form — this is because of hedging undertaken by several participants
Benefits/Need for Commodity Trading
  • Transparency and Fair Price Discovery
  • Hedging
  • No Insider Trading
  • Seasonality Patterns
  • No Counter party Risk (since there are Clearing Houses)
  • Decrease the risk of cartelization

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