Trading Future
What is Future Commodity Trading ?
Commodity trading is not a new thing at all. The whole trading system has been available for more than a decade and yet many people are still unaware of commodity trading. What is commodity trading?
Commodity Future Trading
It can be rice, pork’s belly, gold and etc. When you are trading in commodities, you are actually trading in these types of goods. In order for you as an investor to participate in the commodities market efficiently without the hassle of buying the actual stock of the commodities, you only buy the contracts. Such contracts are also known as “Futures“.
Why is there a need to buy futures? A gold miner will be able to deliver one hundred unit of gold in six months time. On his part, he is afraid that the price of gold is going to fall six months later as compared to the price of gold right now. It is because he believes that the price now is higher than the price in six months’ time. With no actual goods to sell off now, he decides to structure and sell off a gold future. Due to your totally different mind set from the gold miner, you decide to buy the gold from him at the current price and hope to sell it off at a higher price in the future. You buy the futures, and the gold miner is happy with the price he secured. The price of gold goes up in six months’ time and you sold it off for a profit.
Futures trading are especially interesting because you will have to understand the factors that are affecting the production of a commodity, political issues, international trading regulation and etc. It is an exciting form of trading that is especially suitable for the above average investors.
Commodity Trading and the Future of Commodity Markets
Across the world commodity trading activity takes place on a range of modern, regulated commodity exchanges. A wide range of commodities will be traded between end user buyers and producer sellers under the umbrella of standard contract rules and commodity trading regulations.
In effect world commodity exchanges facilitate the buying and selling of raw commodities ranging from crude oil, copper and wheat to platinum and orange juice.
Some commodities such as crude oil and coffee futures have been traded for a considerable long time in mature markets, but now in the early years of the 21st century we are seeing new markets and futures contracts being introduced.
These more exotic commodity classes include carbon in the form of emission permits. The basis of commodity trading activity is the buying and selling of futures contracts for a whole range of commodities. While the nickel or cocoa producer will use commodity futures contracts to hedge their future sales, commercial end users will also use these contracts for hedging against sudden spikes in prices.
Over recent years the volume of electronically traded futures contracts has increased significantly, as a number of exchanges have combined to form a super commodity exchange.
For example, Dalian Commodity Exchange in China has ambitious plans to develop beyond its current specialism in agricultural commodities, and move to industrial metals and more.
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