Commodity Market Trading
When we refer to the commodities market, we not only talk about raw materials and agricultural products such as wheat and corn – we also refer to the contracts that allow market participants to buy and sell these products. With the development of investment technology, traders in the commodities market no longer have to be a producer and a consumer; instead, they can be people who speculate on the direction of prices specific commodities will take. Actual commodities are not transported, it is only the futures or options contracts which are being exchanged. The most popular commodities being traded today include oil, gold and other agricultural products. The commodities markets are found in Chicago and New York.
What Are Commodities Futures?
In the commodities market, commodity futures are contracts which allow market participants to buy or sell a commodity at a specific date and price. The contract will typically include details on the commodity being traded, how much is being exchanged and the price for the contract, as well as the expiration date when the contract will need to be exercised. Because prices of commodities are pretty volatile, producers and consumers can lock in their profits by engaging in a futures contract. In the case of speculators, one of the participants will pay for their cash difference.
Commodities futures are typically traded in an open market, with the futures contract offering a forecast on future prices of the commodity. The value is often determined through the analysis by analysts and traders. For people who are looking to invest in commodities, it is important to monitor the value of a particular commodity by looking at the commodities index or commodities fund. It is also beneficial to look at historical performance so that the trader can determine if the contact is at fair price.
How Does Commodity Trading Affect The US Economy?
The US is the world’s largest consumer. It imports a number of raw materials from all over the world – oil from Canada, gold from Australia and even milk from New Zealand. One commodity that really affects the US is oil. Because the US economy is highly mechanized, it requires the use of oil and petrol fuels, and when the price of oil increases, operational costs will also increase. When this happens, it is difficult for the country to produce cheap goods; hence it is unable to compete in the world market. With globalization at its peak, this is a serious disadvantage as many countries, such as China, can produce the same goods at a much lesser cost.
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