Commodity Trading 101: What Is Commodity Trading?

Commodity trading involves buying and selling physical goods that are in high demand. This includes oil, gold, silver, and other metals.

Commodity Trading by Relitrade Stock Broking Private Limited located in Ahmedabad, Gujarat India.

Commodity Trading by Relitrade Stock Broking Private Limited located in Ahmedabad, Gujarat India.

Learn about futures contracts, options, and other derivatives.
Commodity Trading Futures contracts are standardized agreements between two parties to buy or sell a commodity at a specified price at some point in the future. Options are financial instruments that give buyers the right to purchase or sell a commodity at any price during a certain period of time. Derivatives are financial products whose value depends on the performance of another asset, such as stocks, bonds, currencies, interest rates, or indexes.

Futures Contracts
Commodity Trading Futures contracts are used by investors who need to hedge against fluctuations in the prices of commodities. They allow traders to lock in the price of a commodity at a set date and time. Futures contracts are traded through exchanges, where buyers and sellers meet to exchange futures contracts.

Options
Futures contracts are standardized agreements between two parties to buy or sell a certain quantity of a particular commodity at a specified future date and time. In contrast, options are financial instruments that give the holder the right, but not the obligation, to buy or sell a given asset (such as a stock) at a fixed price within a specified period of time.

Derivatives
Commodity Trading Futures contracts are derivatives because they derive value from the underlying commodity. Options, on the other hand, are based on the price movement of the underlying asset.

What Are Commodities?
A commodity is any type of product that has a fixed supply and demand. Examples of commodities include oil, gold, silver, wheat, coffee, and cotton.

Commodity Trading : Benefits, Futures and More.

Commodity

What is Commodity Market?

  • Commodity markets are markets where raw or primary products are exchanged.
  • It covers physical product (food, metals, and electricity) markets but not the ways that services, including those of governments, nor investment nor debt, can be seen as a commodity.
Relitrade Commodity Trading Company in Ahmedabad, Gujarat India.
Relitrade Commodity Trading Company in Ahmedabad, Gujarat India.

History of Commodity Market?

  • Modern Commodity Market has their roots in the trading of agricultural products.
  • Wheat and corn, cattle and pigs, were widely traded using standard instruments in the 19th century in the United States.
  • Historically, in ancient time’s Sumerian use of sheep or goats, or other peoples using pigs, rare seashells, or other items as commodity money, have traded contracts in the delivery of such items, to render trade itself more smooth and predictable.

List of Traded Commodity

Agricultural products (Grains, and Food and Fiber)

Livestock & Meat

Energy

Precious metals

Industrial metals

Relitrade Commodity Trading Company in Ahmedabad, Gujarat India.

What are Commodity Futures?

  • A Financial Contract
  • The underlying commodity is bought or sold at a future date
  • A tool used by Investors, Hedgers, Arbitrageurs, Day Traders
  • Commodity and Futures contracts are similar as “Forward” Contracts.
  • Early days “future” contracts were used as a way of getting products from producer to the consumer.
  • These typically were only for food and agricultural Products. Now it is used for every metal.
  • Future contract for commodity trading and for share trading is all different from one another.

Why Futures Trading in Commodity?

  • Portfolio diversification and risk management
  • Additional investment opportunity
  • Low cost business
  • No Transportation, storage, insurance, security charges
  • Low Margins – High leverage
  • Intrinsic value of the commodity
  • Domain knowledge of industry
  • Hedging/ Arbitrage

Purpose of Futures Market

  • Meet the needs of three groups of future market users
  • Those who wish to discover information about future prices of commodities (suppliers)
  • Those who wish to speculate (speculators)
  • Those who wish to transfer risk to some other party (hedgers)
  • Those who want to take advantage of price difference in different markets (Arbitrageurs)
  • Variation Margin: Additional margin required to bring an account up to the required level.

Commodity Futures Market participants

  • Hedgers, Producers
  • Farmers, Consumers
  • Refineries, Food processing companies
  • Speculators
  • Institutional proprietary traders
  • Brokerage houses
  • Spot Commodity traders
  • Arbitrageurs vBrokerage houses investors

Delivery System

All exchanges have both cash and delivery settlement systems. If one wants the contract be delivered in cash, he must indicate this at the time of placing the order. If one opts for delivery of the commodity, he must have the necessary warehouse receipts. Sales tax may applicable on delivery, however it is the seller’s responsibility to collect and pay this tax

Commodity Trading 101: What Is Commodity Trading?

Commodity trading involves buying and selling physical goods that are in high demand. This includes oil, gold, silver, and other metals.

Commodity Trading by Relitrade Stock Broking Private Limited located in Ahmedabad, Gujarat India.

Commodity Trading by Relitrade Stock Broking Private Limited located in Ahmedabad, Gujarat India.

Learn about futures contracts, options, and other derivatives.
Futures contracts are standardized agreements between two parties to buy or sell a commodity at a specified price at some point in the future. Options are financial instruments that give buyers the right to purchase or sell a commodity at any price during a certain period of time. Derivatives are financial products whose value depends on the performance of another asset, such as stocks, bonds, currencies, interest rates, or indexes.

Futures Contracts
Futures contracts are used by investors who need to hedge against fluctuations in the prices of commodities. They allow traders to lock in the price of a commodity at a set date and time. Futures contracts are traded through exchanges, where buyers and sellers meet to exchange futures contracts.

Options
Futures contracts are standardized agreements between two parties to buy or sell a certain quantity of a particular commodity at a specified future date and time. In contrast, options are financial instruments that give the holder the right, but not the obligation, to buy or sell a given asset (such as a stock) at a fixed price within a specified period of time.

Derivatives
Futures contracts are derivatives because they derive value from the underlying commodity. Options, on the other hand, are based on the price movement of the underlying asset.

What Are Commodities?
A commodity is any type of product that has a fixed supply and demand. Examples of commodities include oil, gold, silver, wheat, coffee, and cotton.

Commodity Trading : Benefits, Futures and More.