- : When standard movable products are bought and sold in a
market with contracts then it is called a commodity market.
Commodities trading markets initially began with the sale
and purchase of mostly agricultural products but now they deal
in almost all sorts of raw products. Some of the common
commodities that are sold in the commodity market are
agricultural products such as rice, wheat, corn, pulses, cocoa,
soya beans, oats, etc. There is also buying and selling of live
cattle, pigs and pork bellies, gold, silver, natural gas and
crude oil, etc.
Traing of any sort of usually requires the need of a binding
contract. These contracts are provided to state the rules apart
from descriptions on prices, unit price, quantities, and the
time of delivery. Also the commodities market is referred
to as the futures market. The futures market is the more common
terminology and is used by people who deal with commodities.
This means that if you trading in commodities then you are
trading in futures too.
for commodities usually work with certain pre-determined
principles which call out that trading can only be done for
standard products and should take place through a future
contract. Commodity marketing also makes use of another kind of
contract called the spot contract which means that as soon as
the contract is made the transaction is done too. Some of the
common commodities investing market is commodity food market,
commodity fund investing, commodity petroleum market, etc.
Initially investing in commodities was merely restricted to just
the trading and exchanging of raw products by a few sectors
which was then used up within the day or two. But more awareness
has brought all the sectors together enabling speedy movements
and faster transactions now.
There are many benefits of investing in the commodities market,
some of which are elaborated below –
Fixes price easily: How much a commodities market can accomplish
can be known by monitoring the performance of the share and bond
markets. The commodities market usually has an inverse
relationship with the bonds and shares market. This means that
the commodities market will perform well when the other markets
aren’t performing well. The advantages of this are that
predicting the prices of Futures becomes relatively easier. You
can easily make tentative contracts by knowing how the other
markets are performing. But you need to remember that the assets
of the commodities market shouldn’t be linked to the other
markets in any way.
Reduction in risks: If you are an investor, you realize the
danger of risks while investing. Then that means you also
realize that in a commodities trading market, the risks
of trading are relatively less if you invest in commodities.
This means that the profits that you gather from trading in the
commodities market can cover the losses that have been
incurred in the other markets. This is because a commodities
market deals in different items. But you need to exercise
caution if you have entered the contract for a future date to
reduce the risk.