Commodities Trading – An Overview Of The Market
Trading is a major developing factor for a country`s growth and development for this is what brings in what the people of the country require for their basic living and life. There are different types of trading and each one is specialized in a different field differently. Now in this segment let`s have an in-depth look at commodities trading. Commodity trading is nothing but the trading in the basic necessities for an economy like wheat, sugar coffee etc that are some of the essentials for the everyday basic living in a person`s life. These commodities come under the soft commodities while we also have the hard commodities that denote the trading in mined products like oil, gold etc… All our physical daily transactions are all made possible because of this commodities market and trading that makes this simple, routine possible. There are over 50 major commodity products traded across different countries in the world.
There are different types of trading and investments possible in this commodities market and different people take to these types depending upon their understanding and risk taking capabilities. Farmers play a major role in this market since they are the major producers of some of the products like wheat, rice, sugar, tea etc in this market. They generally go for the derivative trading method that comes with price risk management. Other types on which trading is made possible are spot prices, futures, forwards and options on futures.
This market plays an important role in the Forex market since it involves different transactions between different countries. This international market is all about lots where in 1 standard lot Forex = 100000 units
This commodities market and trading had its origin in the ancient days but with a slight difference and was in existence with a different name. It is nothing but the barter system. The commodities market is all about the basic commodities like oil, rice etc irrespective of the producers or manufacturers. The ultimate goal is to help the end customer lead his routine life without a difficulty. This was the base for barter system too. In the ancient days, people used to exchange a product for products depending upon their necessities and demands. This later developed and became the commodities trading and commodities market. Here it has gone to a higher level including the governments of the different countries making this commodity transfer possible through legal contracts between them.
There are basically four different categories under this commodity market; they are:
- Agricultural products like rice, wheat, sugar, cotton, corn etc…
- Livestock that includes feeder and live cattle, pork etc…
- Energy resources like oil, petrol, diesel etc…
- Metals like gold, silver, copper, platinum etc…
All these are some of the essentials and requirements for the everyday living of the people of a country. The very need for commodities market and trading came into existence since not all countries can flourish and grow all their necessities within their grounds and hence it becomes necessary for a country to borrow or trade with other countries rich in producing products they are good at. This is how this commodities exchange between countries came into existence and slowly this became legalized through authenticated agreements and contracts for the supply of products and materials on a long-term basis.
Anything that involves money always comes coupled with a risk factor and commodities market is certainly not an exception to this for here it is money that plays a major role. Many people make their investments here which might at one point or the other become risky. This is because this is a highly unpredictable market wherein the market, demand or supply of products goes up and down erratically. There are many reasons for this. One major reason is the unpredictable climatic conditions. And with global warming bringing about drastic changes in today`s living, this condition has even worsened. Due to sudden changes in the climate like lashing rains, severe drought, natural calamities etc, the impacts go very bad and the first to get affected is probably this commodities market because most of the products that belong to this market are all natural and they greatly depend upon the soil and the landscapes. So when there is a heavy hit on this, automatically there arises a problem of deficiency and insufficiency which not only affects a particular state or country but also those that are dependent on them for a particular product or supply.