Getting To Know Finer Points About Commodity

 

Put in plain and simple words, commodity is the basic material or good.

It is generally of uniform quality and it should be available from multiple places and producers.

The lists of commodities are quite big and it would be impossible to

list down each and every one of them.

However,it could include commodities like wheat, corn, cattle, coffee, soybeans, lumber,

sugar and a host of other such

commodities.

It also could include various metals that are aggressively traded in the market.

A few such examples are copper,

platinum, silver, gold and steel.

Energy markets also are into trading of commodities like natural gas, oil, gasoline and a few others.

These are bought and sold on spot and future markets as far as these commodities are concerned.

The buyers and sellers could include manufacturers, producers,

speculators and end-users or customers.

 

How Do Commodity Markets Work?

 

When we talk about spot commodity buying and selling,

we are referring to markets that where immediate delivery of physical

commodity happens to the buyer

from the seller once the payment has been received.

A few examples of spot sellers include ranchers, farmers, drillers and miners.

Buyers often use the commodities for their own use or make new products

out of them and the same are then marketed to the consumers.

 

What About Futures And Options?

 

When we talk about commodity futures we refer to

contract of buying and selling its.

The date of execution of the contract could be

at a future date that is mutually agreed upon.

Option contracts are slightly different.

They give the seller and the buyer the choice to honor a contract of buying and selling it at

a pre-agreed date and price.

Both the above options are regularly used for hedging, i.e., manage risk,

against exposure and other such activities.

Options and futures are traded on various exchanges such

as New York Mercantile Exchange,

Chicago Board of Trade and London Metal Exchange.

 

Speculation on Commodities

 

Speculation of commodities would like to prefer options and futures because of some obvious reasons.

There is no need for storing or shipping till such time the contract expires. Hence, holding, buying and selling

a contract can become profitable without the need to take physical possession of the its in question.

Though speculators do not have any intention of making or using a its,

there are some obvious activities that make the market flexible and liquid for the various stakeholders.

 

Written By : YOUSSEF J A ALMEER

Image rights @ worldfinance.com