How Commodity Trading and Commodity Markets are Changing
Worldwide we now see commodity trading activity taking place on a range of modern, regulated commodity exchanges. A broad range of commodities are traded between end user buyers and producer sellers within a framework of standard contract rules and commodity trading regulations. In effect world commodity exchanges make buying and selling of raw commodities ranging from crude oil, copper and wheat to platinum and orange juice much easier.
While some of the major commodities like coffee and crude oil have been traded for a number of years, we are now seeing in modern commodity markets the strong innovation theme leading to new futures contracts being traded. One area where new product development has made a notable change is in the trading of carbon emission permits. Given the growing global concern about the serious long term impact to the environment from greenhouse gases, it is likely we will see continued growth in the market for trading carbon emission permits.
Looking ahead we are likely to see further growth in commodity markets which price environmental externalities, with exiting developments in plastics, emissions and water. Commodity trading activity is basically the buying and selling of futures contracts covering an array of commodities. So you may see commercial end users using commodity futures contracts to protect themselves from sudden price spikes, while the palladium or sugar producer will hedge their future sales and avoid losses on dips in the price.
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.
Across the world time zones commodity traders are active in the markets either on the floor of the exchange, called open outcry, or using an electronic trading platform. Over recent years the volume of electronically traded futures contracts has increased markedly, as a number of exchanges have combined to form mega commodity exchanges.
Small retail speculators are now able to commit small amounts of capital to these global commodity markets due to ease of online access and use of real time data and online trading software availability. Some traders will prefer to focus on fundamentals like demand and supply of basic commodities to decide when to trade, while others tend to follow the price action of a commodity irrespective of sector, on the basis that technically analysis suggests it is offering significant opportunities for making profits.
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. - 23305
While some of the major commodities like coffee and crude oil have been traded for a number of years, we are now seeing in modern commodity markets the strong innovation theme leading to new futures contracts being traded. One area where new product development has made a notable change is in the trading of carbon emission permits. Given the growing global concern about the serious long term impact to the environment from greenhouse gases, it is likely we will see continued growth in the market for trading carbon emission permits.
Looking ahead we are likely to see further growth in commodity markets which price environmental externalities, with exiting developments in plastics, emissions and water. Commodity trading activity is basically the buying and selling of futures contracts covering an array of commodities. So you may see commercial end users using commodity futures contracts to protect themselves from sudden price spikes, while the palladium or sugar producer will hedge their future sales and avoid losses on dips in the price.
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.
Across the world time zones commodity traders are active in the markets either on the floor of the exchange, called open outcry, or using an electronic trading platform. Over recent years the volume of electronically traded futures contracts has increased markedly, as a number of exchanges have combined to form mega commodity exchanges.
Small retail speculators are now able to commit small amounts of capital to these global commodity markets due to ease of online access and use of real time data and online trading software availability. Some traders will prefer to focus on fundamentals like demand and supply of basic commodities to decide when to trade, while others tend to follow the price action of a commodity irrespective of sector, on the basis that technically analysis suggests it is offering significant opportunities for making profits.
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. - 23305
About the Author:
William Davies writes for Commodity Trading Today, an informational and educational resource on commodities markets. You can get free Commodity Trading Alerts and news from the Commodity Universe Newsletter here.
posted by Mr. Forex at
2:20 AM
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