Changes to Commodity Trading and Commodity Markets Growth
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.
For the foreseeable future it is likely we will see continual growth of markets which place a price on the environment, with further development in emissions, plastics and perhaps even water. The basis of commodity trading activity is the buying and selling of futures contracts for a whole range of commodities. While the nickel or cocoa producer will use commodity futures contracts to hedge their future sales, commercial end users will also use these contracts for hedging against sudden spikes in prices.
Producers and end users play a relatively small role in the commodity markets compared to speculators or traders who move in and out of the markets trying to make profits, and provide the liquidity. A futures contract represents a specific type of contract either to buy or sell a specified quantity of a commodity at a price determined by supply and demand at time of contract, at an agreed date in the future.
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.
With the opening up of the emerging market economies such as Brazil, Russia, India and China (or BRIC countries), we are likely to see a continuation of the growth in commodity markets in these nations. For example, Dalian Commodity Exchange in China has ambitious plans to develop beyond its current specialism in agricultural commodities, and move to industrial metals and more. While in the Middle East, Dubai is a growing financial centre and the Dubai Gold and Commodities Exchange has an interesting product range including WTI light, sweet crude oil, steel, plastics, gold and silver and the Indian Rupee.
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. - 23200
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.
For the foreseeable future it is likely we will see continual growth of markets which place a price on the environment, with further development in emissions, plastics and perhaps even water. The basis of commodity trading activity is the buying and selling of futures contracts for a whole range of commodities. While the nickel or cocoa producer will use commodity futures contracts to hedge their future sales, commercial end users will also use these contracts for hedging against sudden spikes in prices.
Producers and end users play a relatively small role in the commodity markets compared to speculators or traders who move in and out of the markets trying to make profits, and provide the liquidity. A futures contract represents a specific type of contract either to buy or sell a specified quantity of a commodity at a price determined by supply and demand at time of contract, at an agreed date in the future.
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.
With the opening up of the emerging market economies such as Brazil, Russia, India and China (or BRIC countries), we are likely to see a continuation of the growth in commodity markets in these nations. For example, Dalian Commodity Exchange in China has ambitious plans to develop beyond its current specialism in agricultural commodities, and move to industrial metals and more. While in the Middle East, Dubai is a growing financial centre and the Dubai Gold and Commodities Exchange has an interesting product range including WTI light, sweet crude oil, steel, plastics, gold and silver and the Indian Rupee.
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. - 23200
About the Author:
The author, William Davies, travels extensively across the world, watches the exchanges and contributes to Commodity Trading Today, an online resource on commodities markets. Secure your free Commodity Trading Alerts and news from the Commodity Universe Newsletter now.
posted by X - Men @ 12:20 AM
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