Commodity Trading Challenges, Opportunities in Commodity Markets
The commodity trading universe is now based on a modern, open, well regulated network of commodity exchanges across all time zones. Primary producers and end users can trade commodities within agreed and well defined regulations and using standardised contracts and dispute mechanisms. With the result that today it is much easier to smoothly trade across the range of commodities from gold to rice and from crude oil to aluminium and sugar.
Consider that a few commodities like crude oil and coffee have been traded for a very long time in mature markets, but now we see early 21st century markets innovating with different types of futures contracts being introduced. Among these more colourful types of commodity are carbon in the form of emission permits. With the rising anxiety about the serious environmental damage from climate change caused by greenhouse gases, a fast growing market has mushroomed in emissions permits, a form of activity known as carbon trading.
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.
The wider availability of real time trading data and online trading software packages means that the opportunities to engage in commodity trading have reached the small retail speculator, who trades smaller amounts and now has virtually global access to the internet. While some traders look to the fundamentals of demand and supply of basic commodities in specific sectors, a growing number prefer to follow the price action of exciting trades, relying on technical analysis irrespective of the commodity in question.
The emerging economies of Brazil, China, India and Russia (or BRIC) continue to expand over the long term and so expansion in regional commodity markets is to be expected going forward. Just look for example at Dalian commodity Exchange in China which has plans to move beyond its core strength of agricultural commodities towards metals and other areas. And look at Dubai in the Gulf, an area with a fast growing financial centre where a wide range of commodities including steel, plastics, WTI light, sweet crude oil, Indian Rupee, silver and gold can be traded on the Dubai Gold and Commodities Exchange.
While the world economy has suffered some serious shocks following the credit crunch and slowing rate of growth, with a number of companies and even some countries getting into serious financial difficulties, commodities as an asset class would appear relatively unimpaired. Despite the short term difficulties, the global economy will continue to rely on key commodities such as crude oil, steel and copper, as well as basic softs like sugar, cotton and coffee, not to mention grains such as wheat, corn and rice. For this reason we can expect commodity markets to see through these problems and for commodity trading as an activity to continue to be at the centre of world trade and finance. - 23167
Consider that a few commodities like crude oil and coffee have been traded for a very long time in mature markets, but now we see early 21st century markets innovating with different types of futures contracts being introduced. Among these more colourful types of commodity are carbon in the form of emission permits. With the rising anxiety about the serious environmental damage from climate change caused by greenhouse gases, a fast growing market has mushroomed in emissions permits, a form of activity known as carbon trading.
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.
The wider availability of real time trading data and online trading software packages means that the opportunities to engage in commodity trading have reached the small retail speculator, who trades smaller amounts and now has virtually global access to the internet. While some traders look to the fundamentals of demand and supply of basic commodities in specific sectors, a growing number prefer to follow the price action of exciting trades, relying on technical analysis irrespective of the commodity in question.
The emerging economies of Brazil, China, India and Russia (or BRIC) continue to expand over the long term and so expansion in regional commodity markets is to be expected going forward. Just look for example at Dalian commodity Exchange in China which has plans to move beyond its core strength of agricultural commodities towards metals and other areas. And look at Dubai in the Gulf, an area with a fast growing financial centre where a wide range of commodities including steel, plastics, WTI light, sweet crude oil, Indian Rupee, silver and gold can be traded on the Dubai Gold and Commodities Exchange.
While the world economy has suffered some serious shocks following the credit crunch and slowing rate of growth, with a number of companies and even some countries getting into serious financial difficulties, commodities as an asset class would appear relatively unimpaired. Despite the short term difficulties, the global economy will continue to rely on key commodities such as crude oil, steel and copper, as well as basic softs like sugar, cotton and coffee, not to mention grains such as wheat, corn and rice. For this reason we can expect commodity markets to see through these problems and for commodity trading as an activity to continue to be at the centre of world trade and finance. - 23167
About the Author:
William Davies contributes to Commodity Trading Today, an informational and educational resource on commodities markets. You can get free Commodity Trading Alerts and articles from the Commodity Universe Newsletter here.
posted by X - Men @ 5:58 AM
0 Comments
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home