Commodity Futures Trading
In economics, a commodity is something physical that has significant or partial fungibility: that is, that the marketplace treats cases of that good as equal or nearly so in terms of their production without regard to who manufactured them. For example, if I am a car dealer in Detroit and I sell a hundred cars in a week for $1000 each, then half of my customers will be able to buy the cars from other dealers in Detroit for the same price or lower. This situation is called “commodity demand.” The supply of commodities is determined by the demand; in the case of car dealers in Detroit, the demand for cars is dictated by the amount of money that the car manufacturers in Detroit are willing to pay for new cars, and the demand for cars in general is determined by the economy.
There are different types of commodities and some people like to lump all commodities under the heading of “commodity,” but this is very unhelpful. Commodity are goods or services that can be traded easily on the commodity exchanges such as the New York Board of Trade (NYBOT) and the London Commodity Exchange (LCBO). A commodity can be produced in one country and consumed in another; it can be stored by a producer within a country and transported around the world without having to incur additional transportation costs; it can be physically or electronically delivered. A good example of a commodity is gold, which can be physically or virtually delivered anywhere in the world, at little to none of the additional storage costs, and is bought and sold on major stock exchanges.
Commodity trading includes commodity futures contracts, forward contracts, options, and foreign exchange (Forex) trading. Most Commodity traders are individual Commodity traders, brokerages, and financial institutions, though there are a few large futures and commodity funds. Some commodity futures contracts, such as corn futures, are traded on major stock exchanges. There are also a number of commodity futures brokers and companies, including those that deal exclusively with the buying and selling of futures contracts, as well as many medium-sized and large commodity futures traders.
