A commodity market is basically a market which trades in the main economic sector instead of manufactured items, like sugar, cocoa and coffee. Generally hard commodities are traded, for example gold and oil, while agricultural commodities are traded in the futures sector. Conventional futures contracts are the safest way of trading in commodities, since physical assets are rarely at risk. Although, there are many types of commodities contracts, they fall into two main categories, namely: Commodity futures and Treasuries.
In the exchange-traded commodities market, traders buy and sell shares or units of goods for delivery after a specific period. The term ‘commodity’ is derived from the term commodity trader. The commodity markets provide opportunities for investors to profit from the prices of specific products that have risen over the last few days. The trader buys the goods and sells them for delivery later in the same month. In the case of forward contracts, the money is paid to be held in an account and the goods will be delivered a specified period later.
The commodity markets provide opportunities for global trading for example, trading in gold, crude oil, silver, corn, pork bellies and wheat. There is also the opportunity for trading between parties across the globe. For example, one country might export its goods and another country might buy. The buying and selling prices for these goods are decided by supply and demand.
The London Metal Exchange trades in numerous kinds of currencies including the U.S. dollar, U.K. pound, Japanese yen, Swiss franc, Canadian dollar, New Zealand dollar, Euro, Australian dollar and Singapore currency. This is a very busy trading center which offers numerous trading hours throughout the day. During the trading hours, traders can place orders for any quantity of currencies to be bought or sold. Most of the brokers that are present in this market have the access to the funds needed for facilitating trade which can be traded at any time.
The commodity markets are not only used for the commercial sector. Several households in U.K. set up trading on the commodity markets to stabilize their incomes. In this way they can ensure a constant income during uncertain times. In the case of agricultural produce, like sugarcane, barley, wheat and rice, the price is highly regulated by the government and a fixed contract is entered into between the producer and the importer. These contracts ensure that the production remains at a level which allows domestic consumption.
The commodity markets also play an important role in the housing market. Many people prefer to purchase houses rather than pay high amounts of money for them as they believe that homes will increase in value in due course of time. This is facilitated by the commodity prices. These contracts are also traded on the commodity exchanges enabling people to buy or sell homes according to their preference. Thus these markets not only facilitate trade between the producers and the consumers but also help the home owners to buy or sell property.