The commodity market can be both a wholesale and retail market. The term commodity refers to all kinds of natural resources that are used in the production of finished or semi-finished products. It can be used as either a mechanism, or an energy incoming cycle for production or delivery. These markets can be traded between copper, wheat, gold, oil, and cotton.
Commodity trading is very similar to stock market trading. However, there are two principal markets, i.e.
1). Spot market
2). Derivative Market.
The spot market is where commodities can be traded immediately for delivery. The commodities derivatives market caters only to financial instruments that deal with commodities. The commodity analysis reports that are regularly prepared by research analysts will allow traders and investors to make informed decisions about commodity trading mail.
This trading market has three main players: producers (farmers, companies and mining industries), financial institutions, (asset managers (banks, hedge funds, institutional investor) etc. ), individuals (as investors or issuers on the main market) and corporations.
The derivatives (forwards and options, futures and swaps, warrants, swaps and warrants) have seen a strong growth since the 1980s. Today, the bulkiness of trade is achieved via these types products. The commodity market is similar to other trading markets. Transactions are made on managed markets or on OTC markets, also known as OTC (Over the -counter).
Markets that are well managed, such as the futures and grants markets, have transactions that are standardized in terms of quality, quantity and maturity for merchandising. There is no counterpart risk due to the existence of a clearinghouse which is available to all buyers and sellers and checks their creditworthiness every margin call.
The Over-the-counter market, on the other hand, allows the buyer to enter the transaction directly with the seller. These transactions are less standardized, but they also better suit the specific needs of the operators.
The commodity market is almost entirely electronic and paperless (with a few exceptions). CME Group is the main organization of the trade.
- CBOT (Chicago Board of Trade)
- CME (Chicago Mercantile Exchange),
- NYMEX (New York Mercantile Exchange).
- COMEX (New York Commodity Exchange)
It is currently the largest trading platform, with futures or contracts and the most extensive selection of commodity contracts. Other major stock exchange trading commodities include the LME (London Metal Exchange), and the ICE, commonly NYSE.
