What is the commodity market?

commodities are real physical goods such as grain, gas, metals, cattle and food products. The commodity market consists of exchanges where commodities are purchased and sold using standardized contracts. Currently, there are 48 large commodities of exchanges worldwide selling approximately 100 different commodities. Eurex, electronic exchange in Europe, is the world's largest commodity market.

It seems that the existence of commodity contracts and exchanges dates back to the ancient civilization of Sumer. The primary products that were traded at that time were grain and livestock. Now there are five basic categories of goods sold in the commodity market; grains such as corn, wheat and soybeans; energy products, including oil, heating oil, gasoline and natural gas; metals such as gold, silver and copper; Softs, a category that includes food and production products such as cotton and coffee; and livestock animals.

In order for the product to qualify for a commodity -goal trade, they must meetcertain instructions. In the case of industrial and agricultural products, the commodity must be in its raw form. For example, corn is acceptable, while corn meal is not. The commodities covering the perishable, such as frozen orange juice, must have sufficient lifetime.

The

market exchange of commodity is established in the same way as their counterparts. Replaceable floors are divided into sections called pit, where traders stand against each other. Each part is devoted to a specific commodity. Traders on the floor must be members of the stock exchange. Non -members, such as farmers or investors, must work through a brokerage company that holds membership in one of the stock exchanges.

The

commodity market is used as a hedge against fluctuating prices. One examples of a commodity transaction is a cotton grower who wished to negotiate a fixed price for his crop before harvesting when the MO is overwhelmedHou results in glot on the market. The grower can also use futures contract for his harvest as a collateral for loans. The manufacturer buys the benefits of cotton by knowing its costs in advance. It is also protected from the possibility that costs can be drastically increased due to unfavorable crops.

The

commodity market consists of two primary types of buyers; Those who have legitimate need to sell their goods or buy commodity products for future use, and those who want to speculate in commodity contracts to make profits. Most commodity products are sold through futures contracts that guarantee that a certain amount of commodity will be sold in the future at a predetermined price. Agreements on immediate supplies are called point contracts and are often used to fill in the futures contract.

Investors who speculate on the commodity market market buy and sell futures contracts without any takeover of the subordinate product. If the commodity price increasesí, the contract becomes more valuable; If the price drops, it also evaluates the contract. Contracts are often disposed of before delivery date.

Some benefits of investing in commodities include lower commissions and faster investment turnover. These markets are very smooth and prices fluctuate much faster than in real estate or stocks. Traders can also use a margin account with a lower percentage of cash in front than for stock margin accounts. Although there is an opportunity for rapid profit, it is also the possibility of rapid loss. Investors should spend sufficient time studying the commodity they want to trade before making a significant investment.