Commodities exchange
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18 AUG 2007
commodities exchange is an exchange where various commodities and derivatives
products are traded. Most commodity markets across the world trade in
agricultural products and other raw materials (like wheat, barley, sugar, maize,
cotton, cocoa, coffee, milk products, pork bellies, oil, metals, etc.) and
contracts based on them. These contracts can include spot prices, forwards,
futures and options on futures. Other sophisticated products may include
interest rates, environmental instruments, swaps, or ocean freight contracts.
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Commodities trading
Commodities exchanges, usually trade futures contracts on commodities. Such
as trading contracts to receive something, say corn, in a certain month. A
farmer raising corn can sell a future contract on his corn, which will not
be harvested for several months, and guarantee the price he will be paid
when he delivers; a breakfast cereal producer buys the contract now and
guarantees the price will not go up when it is delivered. This protects the
farmer from price drops and the buyer from price rises.
Speculators also buy and sell the futures contracts to make a profit and
provide liquidity to the system. |
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