Want To Invest In Commodity? Know The Basics First

A commodity is any product having a commerce value i.e. an article of commerce that can be traded on an authorized commodity exchange NYBOT or NYMEX. The article should be a movable of value, which can be purchased or sold or used as the subject of barter or sale. For example agricultural products, minerals, metals etc.

commodity market

These commodities are traded on commodity exchanges throughout the world. The concept of such exchanges started way back in the middle of the 19th century in the United States. Then, a few businessmen started organizing market forums to make commodities buying and selling easy. This provided a platform for buyers and sellers to meet. Here, the businessmen sets quality as well as quantity standards of commodities and rules of business were also established.

Taking snippets from history, a group of Manhattan dairy merchants brought a chaotic New York market into a system in terms of storage, pricing and transfer way back in 1872. During the Great Depression in the year 1933, Commodity Exchange, Inc. was established in New York with the merger of National Metal Exchange, Rubber Exchange of New York, National Raw Silk Exchange and New York Hide Exchange. Today, on a global level, major commodity markets are in US and UK.

The Commodity Market is also known as Derivatives Market or Futures. There are three players in the market namely Hedgers, Speculators and Arbitrators. Hedgers are investors who protect themselves from the risk related to price. Speculators are middlemen and they never actually own the commodity. Arbitrators are person chosen officially to make a decision between two people or two parties.

Commodity market is run by Future Contracts. Future Contracts is an agreement between two parties for a particular commodity to be traded in a particular time in the future for a pre-defined price. The advantages of future contracts are that the price moves are favorable and no premium charges are associated.

Few of the world’s leading Commodity Exchanges are as given below:

Exchange Abbreviation Location Product Types
CME Group CME Chicago, US Agricultural, Biofuels, Precious Metals
New York Board of Trade NYBOT New York, US Agricultural, Biofuels
New York Mercantile Exchange NYMEX New York, US Energy, Agricultural, Industrial Metals, Precious Metals
Dalian Commodity Exchange DCE Dalian, China Agricultural, Plastics
NYSE Euronext Europe Agricultural
London Metal Exchange LME London, UK Industrial Metals, Plastics
Central Japan Commodity Exchange Nagoya, Japan Energy, Industrial Metals, Rubber
Dubai Mercantile Exchange DME Dubai Energy

 

 

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