Learn More About Commodity Trading

Learn More About Commodity Trading

Commodity trading is an act of investing in physical substances like oil, gold, cotton, lumber, wheat, cattle, etc. The daily buying or selling of the products in commodity trading is propelled economic trends in the commodity market. The commodity traders can be of many types. All of them deal with raw materials used at the beginning of the production process, for example, grains for making animal feed. Some of them work for international oil and mining companies also.

Currently, there are totally four classifications of tradable goods or commodities:

  1. Metals such as gold, silver, copper, and platinum
  2. Energy sources like crude oil, natural gas, etc.
  3. Livestock and meat
  4. Agricultural produce, which includes wheat, rice, corn, sugar, etc.

Commodity traders have to quickly react to the major events that affect the market produce. For example, natural disasters like hurricanes can destroy crops like sugarcane, thus reducing their supply and leading to rapid market downfalls. In such cases, slow reactions can cause a heavy loss in the market produce.

WHAT ARE THE MAIN FACTORS THAT EFFECT THE COMMODITY MARKET? 

The main factors that affect the commodity market and commodity trading are the rising demands, supplies, US dollars, substitution and weather conditions.

WHY COMMODITIES SHOULD BE TRADED?

Commodity trading has become essential mainly because of the rapidly  increasing population growth, inflation hedge, and portfolio diversity.

To initiate buyers and sellers to fix transaction prices before delivery, the parties usually create contracts called forward contracts which allow the seller to deliver a fixed amount of the grain in question for a scheduled price on a fixed date. In return for this, the seller receives payment for the grains. These contracts are called forward contracts. They trade in the over-the-counter market, meaning the contracts are negotiated between two parties privately.

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