Focus on Commodity Trading and the Future of Commodity Markets
Global commodity trading now takes place on a growing platform of modern, transparent commodity exchanges across all time zones. Using agreed frameworks of rules and regulations and standard contract designs we now see a wide range of commodities traded between end users and primary producers. The result is that it is now much easier to buy and sell across the range of basic commodities from orange juice to gold bullion, from crude oil to coffee beans.
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.
Global commodity markets now see traders increasingly active using electronic trading platforms which are open 24 hours as the traditional open outcry on exchange floors falls away in overall terms. We now see the volumes of electronic trading increasing and many exchanges have merged to consolidate their platforms and achieve synergy.
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 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.
The global credit crunch has had a profound impact on the world economy with growth being cut sharply and this has had knock-on effect on commodity prices and demand, with major companies and some economies being hit badly, yet as an asset class commodities seem unimpaired. If we look beyond the short term problems, the world economy will still need the major commodities like crude oil, iron ore, aluminium, and copper, as well as softs like sugar, cocoa and coffee, and the grains like soybean and rice. So looking ahead commodity markets will recover and the environment for commodity trading will be such that it will continue to be at the heart of world finance. - 23221
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.
Global commodity markets now see traders increasingly active using electronic trading platforms which are open 24 hours as the traditional open outcry on exchange floors falls away in overall terms. We now see the volumes of electronic trading increasing and many exchanges have merged to consolidate their platforms and achieve synergy.
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 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.
The global credit crunch has had a profound impact on the world economy with growth being cut sharply and this has had knock-on effect on commodity prices and demand, with major companies and some economies being hit badly, yet as an asset class commodities seem unimpaired. If we look beyond the short term problems, the world economy will still need the major commodities like crude oil, iron ore, aluminium, and copper, as well as softs like sugar, cocoa and coffee, and the grains like soybean and rice. So looking ahead commodity markets will recover and the environment for commodity trading will be such that it will continue to be at the heart of world finance. - 23221
About the Author:
The author, William Davies, travels extensively across the world, watches the exchanges and writes for Commodity Trading Today, an informational and educational resource on commodities markets. Secure your free Commodity Trading Alerts and articles from the Commodity Universe Newsletter here.
posted by X - Men @ 4:13 AM
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