• Commodity Market

    Commodity market trading system and strategies that actually win. Financial news always addresses the commodity market. The price of oil, corn, gold, beef, wheat, hogs, orange juice, just about everything is constantly being reported. The futures market trading commodities is a world-wide arena operating each and every day of the year, 24 hours a day. It is a constantly moving market-place covering every conceivable product or service and even abstract commodities that affect commerce. Everything we eat or drink, what we use for heat and energy, the supplies used to construct our home – the price of all our needs and whims is determined by the commodity market. The price of the commodity is called the “market price” and is by and large determined by supply and demand.
    How the Commodity Market Works

    Ways to Invest in the Commodity Market

    Billions of dollars are exchanged daily in the fast paced world of trading commodities. While there are many ways to invest in the market, the most direct way is to buy a futures contract, whereby you agree to buy a certain amount of a commodity at a fixed time in the future. It’s the usual way to invest in gas, oil, silver and gold. That’s a little easier than buying or selling 20,000 bushels of wheat or 30,000 barrels of oil.

    Market Price

    There are a great many factors that determine commodity market price, but basically it is supply and demand. When buyers and sellers both reach a price agreement, a point of balance, that is the market price. The market price changes daily as buying and selling is non-stop.

    Commodity Market Explained With Examples

    Most commodities are raw or primary products. They are roughly categorized as:

    Hard Commodities:
    These are natural resources that usually have to be extracted or mined: oil, gas, rubber, gold, silver, copper, platinum, palladium. Energies cover the many products and byproducts used to produce and provide energy to heat homes and businesses and run machinery and vehicles: Oil (crude, sweet, heating), gas, coal, electricity.

    Soft Commodities:
    These are agricultural and livestock – commodities that are grown, such as: wheat, corn, coffee, sugar soybean, cotton, rice, oats, cocoa. Meats – cattle (live and slaughter) pork bellies, the price of which is dependent on other commodities, like corn.

    Hedgers and Speculators

    Most commodity investors are commercial and are themselves “institutional” users of the commodities they invest in. They are called “hedgers.” They buy and sell in the futures market to try to establish a commodity market price, sometimes trying to establish prices weeks or months in advance, because, since they are users of the commodity, they want to establish the price most favorable to them.

    “Speculators” are everyone else who invests in commodities. They hope to buy low and sell high.

    Exchanges to Trade Commodities

    There are many world-wide futures exchanges that allow for commodity trading. These exchanges are highly regulated with operations constantly monitored for adherence to the rules established by the CFTC (Commodity Futures Trading Commission). The NFA (National Futures Association) is responsible for maintaining industry standards in professional conduct and accountability. Each exchange has its own “specialized” area of products and each of those has its own trading pit. Most investors will need the services of a commodities broker.

    There are Several Commodity Exchanges World-Wide

    The Chicago Mercantile Exchange (CME) is one of the largest exchanges in the world. It is an American financial exchange, trading futures, financial instruments, equities, currencies, interest rates, and unusual vehicles such as weather and real estate.

    The New York Mercantile Exchange (NYMEX) is composed of two merged exchanges: NYMEX and the New York Commodities Exchange (COMEX).

    Chicago Board of Trade (CBOT)
    Winnipeg Commodities Exchange (WCE)
    Intercontinental Exchange (ICE)
    Kansas City Board of Trade

    Low Margin Requirements

    The commodity market reveals yet another path towards opportunities for profits and diversification of your investment portfolio. As with all investing, trading the commodity market carries risk, but you can trade with very low margins. It’s not for everyone, but if you decide to jump in, it will be an exciting ride.

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