Tuesday, June 27th 2017

What are Commodity Markets?

The trade of commoditiies is the exchange of money for future moves on a long list of natural resources. The greatest of these resources is oil but it also includes agriculture, livestock, metals, precious metals and all states of fuel. Commodity markets are both vast and regulated. Unlike many other markets they are still centralized on physical exchanges so that each trade or contract is scrutinized. The reason for this is that since many commodities are needed (eg food) it would be against any nation's interest to have this market greatly mispriced.

The biggest echanges for commodities are both in the United States. The MERC (Chicago Mercantile Exchange) and the CBOT (the Chicago Board of Trade) both handle a substantial amount of daily global volume.

Commodities have experienced the same boom in interest as currencies as the commodity cycle revved up from demand from China and India. Equally important was the massive cash infusion into hedge funds since the millenniumm, which gave hedge funds a lot to speculate with and leverage to the hilt.

More traditionally, farmers or oil companies would use these exchanges to hedge their product against runaway costs or a major drop in prices.

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