Commodity Trading and Commodity Market Developments
The commodity trading universe is now based on a modern, open, well regulated network of commodity exchanges across all time zones. Primary producers and end users can trade commodities within agreed and well defined regulations and using standardised contracts and dispute mechanisms. With the result that today it is much easier to smoothly trade across the range of commodities from gold to rice and from crude oil to aluminium and sugar.
Consider that a few commodities like crude oil and coffee have been traded for a very long time in mature markets, but now we see early 21st century markets innovating with different types of futures contracts being introduced. Among these more colourful types of commodity are carbon in the form of emission permits. With the rising anxiety about the serious environmental damage from climate change caused by greenhouse gases, a fast growing market has mushroomed in emissions permits, a form of activity known as carbon trading.
Going forward we can expect to see more growth in commodity market products which place a price on the environment, for example, new products in carbon emissions, plastics, water and even the weather.In fundamental terms, commodity trading is buying and selling of futures contracts which represent commodities. In the market, you may see the zinc producer hedging his future sales from a price drop or perhaps a food manufacturer hedging his cocoa purchases from a sudden price spike caused by crop failure.
The commodity markets rely on their liquidity from the speculators who are the major players, while commodity end users and primary producers are relatively minor actors who are hedging their operations. What are the key requirements of a futures contract? That it allows a trader to buy or sell a specified amount of a given commodity in the future, at a price fixed when the contract is exchanged and based on the demand and supply at that time.
In recent years the volume of electronic trading has increased significantly as we see various exchanges merging to achieve efficiency and greater synergy. Across the globe, traders are active either on the floor of exchanges, called open outcry, or as is increasingly more likely now, via an electronically traded platform open 24 hours.
The wider availability of real time trading data and online trading software packages means that the opportunities to engage in commodity trading have reached the small retail speculator, who trades smaller amounts and now has virtually global access to the internet. While some traders look to the fundamentals of demand and supply of basic commodities in specific sectors, a growing number prefer to follow the price action of exciting trades, relying on technical analysis irrespective of the commodity in question.
The BRIC economies refer to China, Brazil, India and Russia and these emerging countries look set to continue growing over the long term and with them the growth in regional commodity markets should continue. In the Middle East we see how Dubai is rapidly emerging as an important financial centre, where one can trade WTI light, sweet crude oil, gold and silver, steel, plastics and Indian Rupee at Dubai Gold and Commodities Exchange. In China, Dalian Commodity Exchange has plans to expand beyond its traditional area of agriculture commodities and move into industrial metals and other areas.
We can all see how the global credit crunch had such a profound effect on economic growth, with significant corrections in rates of growth and sharp falls in demand for commodities, as major economies and companies were seriously affected, but despite this commodities as an asset class are not seriously affected. Looking ahead to the future, as economic growth picks up there will be a resumption in demand for key commodities like crude oil, aluminium, copper, iron ore and demand for softs like sugar and wheat will be buoyant with competing food and biodiesel demands. Going forward, the outlook for commodity trading will be positive and as an activity it will again be at the centre of world finance. - 23208
Consider that a few commodities like crude oil and coffee have been traded for a very long time in mature markets, but now we see early 21st century markets innovating with different types of futures contracts being introduced. Among these more colourful types of commodity are carbon in the form of emission permits. With the rising anxiety about the serious environmental damage from climate change caused by greenhouse gases, a fast growing market has mushroomed in emissions permits, a form of activity known as carbon trading.
Going forward we can expect to see more growth in commodity market products which place a price on the environment, for example, new products in carbon emissions, plastics, water and even the weather.In fundamental terms, commodity trading is buying and selling of futures contracts which represent commodities. In the market, you may see the zinc producer hedging his future sales from a price drop or perhaps a food manufacturer hedging his cocoa purchases from a sudden price spike caused by crop failure.
The commodity markets rely on their liquidity from the speculators who are the major players, while commodity end users and primary producers are relatively minor actors who are hedging their operations. What are the key requirements of a futures contract? That it allows a trader to buy or sell a specified amount of a given commodity in the future, at a price fixed when the contract is exchanged and based on the demand and supply at that time.
In recent years the volume of electronic trading has increased significantly as we see various exchanges merging to achieve efficiency and greater synergy. Across the globe, traders are active either on the floor of exchanges, called open outcry, or as is increasingly more likely now, via an electronically traded platform open 24 hours.
The wider availability of real time trading data and online trading software packages means that the opportunities to engage in commodity trading have reached the small retail speculator, who trades smaller amounts and now has virtually global access to the internet. While some traders look to the fundamentals of demand and supply of basic commodities in specific sectors, a growing number prefer to follow the price action of exciting trades, relying on technical analysis irrespective of the commodity in question.
The BRIC economies refer to China, Brazil, India and Russia and these emerging countries look set to continue growing over the long term and with them the growth in regional commodity markets should continue. In the Middle East we see how Dubai is rapidly emerging as an important financial centre, where one can trade WTI light, sweet crude oil, gold and silver, steel, plastics and Indian Rupee at Dubai Gold and Commodities Exchange. In China, Dalian Commodity Exchange has plans to expand beyond its traditional area of agriculture commodities and move into industrial metals and other areas.
We can all see how the global credit crunch had such a profound effect on economic growth, with significant corrections in rates of growth and sharp falls in demand for commodities, as major economies and companies were seriously affected, but despite this commodities as an asset class are not seriously affected. Looking ahead to the future, as economic growth picks up there will be a resumption in demand for key commodities like crude oil, aluminium, copper, iron ore and demand for softs like sugar and wheat will be buoyant with competing food and biodiesel demands. Going forward, the outlook for commodity trading will be positive and as an activity it will again be at the centre of world finance. - 23208
About the Author:
The author,William Davies, journeys the world, observes commodity exchanges and writes for Commodity Trading Today, an online educational resource on commodities markets. Grab your free Commodity Trading Alerts and news from the Commodity Universe Newsletter now.
posted by X - Men @ 4:08 AM
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