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What are Commodity Markets?

2017-04-09T08:14:36+00:00

The term 'Commodity Markets' is included in the Economics edition of the Financial Dictionary. Get yours now on amazon in ebook or paperback format. Read more here...

Commodity Markets refer to exchanges where individuals and businesses can trade, buy, or sell primary inputs and raw materials either in person or virtually (over the Internet or phones). These days there exist around 50 important commodities markets around the globe. Each of these works in some way to make trade and investment possible in around 100 different main commodities.

Commodities can be subdivided into two principal types. These are soft and hard commodities which entities trade on the commodities markets. Soft commodities refer to livestock and agricultural produce. This includes wheat, corn, sugar, coffee, cattle, pork bellies, and soybeans. Hard commodities are generally the kinds of natural resources which have to be extracted or mined. This includes such famous commodities as silver, gold, oil, and rubber.

A wide range of means exist for investing in such commodities. Investors have the ability to buy stocks in companies whose enterprises are based upon commodities prices. They might also buy them indirectly through ETF exchange traded funds, index funds, or mutual funds which specialize in them. There is a much more direct way to invest in these commodities though. This is through purchasing futures contracts on the commodities themselves from the commodity markets on one of the various commodities exchanges. Such a contract will contractually obligate the owner of the instrument to sell or buy the commodity for a preset price level on a future delivery date.

There are two cities in the United States which host the most important commodities markets and exchanges domestically. These are New York City and Chicago. A few less important exchanges are based in other cities of America. The biggest of them by far is the CME Chicago Mercantile Exchange which became so wealthy and powerful (as the CME Group) that it bought out a host of other rival exchanges. On the CME, investors and traders can buy, sell, and trade such well-known commodities as pork bellies and lean hogs, lumber, cattle, feeder cattle, butter, and milk.

Another exchange is the CBOT Chicago Board of Trade, which dates back to 1848 in Chicago. On this exchange, contracts include gold, ethanol, rice, oats, wheat, corn and soybeans.

On the NYBOT New York Board of Trade, there are a wide range of commodities. Chief among these are the standards of the commodities world orange juice, sugar, cocoa, ethanol, and coffee. On the NYMEX New York Mercantile Exchange investors can trade such commodities as gold, oil, copper, silver, platinum, palladium, aluminum, propane, heating oil, and even electricity.

There are also a few regional American commodity markets. These include the MGE Minneapolis Grain Exchange and the KCBT Kansas City Board of Trade. Both mostly concentrate their commodities offerings on agriculture. Among the biggest and most important international commodity markets are the LME London Metals Exchange and the Tokyo Commodity Exchange.

Nowadays, these commodity markets mostly trade on cutting-edged and state of the art electronic systems. There are a few of the United States’ exchanges which still utilize the in-person, open outcry method. Commodities’ trading which takes place outside the operating hours and locations of the exchanges is called the OTC over the counter market.

Commodity markets are highly regulated in the United States. It is the responsibility of the CFTC Commodity Futures Trading Commission to regulate the options and futures on commodities markets. Their primary goal is to ensure efficient, competitive, and transparent marketplaces which assist consumers by protecting the clients from manipulation, fraud, and unethical practices.

Once upon a time, the regular investors could not invest at all in commodity markets. This was because it took major amounts of money, time, and know-how to do it successfully. Thanks to the various numerous routes to the different commodities markets today, even those traders who are not professionals can take part in the excitement and opportunity that are the commodity markets.

The term 'Commodity Markets' is included in the Economics edition of the Financial Dictionary. You can get your copy on amazon in Kindle or Paperback version. See more details here.