Everything You Wanted to Know about Commodities
Trading commodities is a pillar of global trading. As a serious investor, it is important for you to have an understanding of trading commodities. There is a potential to make large profits if you have sufficient information about the issues that frame the global trade of commodities and if you understand the workings of trading those commodities. The trade of commodities has an extensive history but innovations are always being made. Technological advancement has created entirely new commodities that are being traded and the creation of online commodity trading allows you to easily access the global market with a little capital.
Types of Commodities
Commodities are a variety of resources that may be traded in specified amounts at a minimum quality standard. The use of these parameters allows you to trade large numbers and volumes of commodities in the global commodity exchanges with reasonable certainty that the traded commodities are not lacking in any way. Commodities are separated into several different classifications including: agricultural commodities (wheat, corn, cocoa, coffee, beef, etc) metal commodities (copper, iron ore, gold, silver, etc) and energy commodities (gas, oil, etc). In addition, there are other commodities that do not fall under any classification.
The proliferation and advancement of technology has enabled the creation of new commodities because technology has allowed the capability for producing high-tech products to spread throughout the world – like silicon chips. There is also a new commodity exchange that deals in nanomaterials called the Integrated Nano-Science Commodity Exchange that was founded in 2009. Additionally, the recent environmental issues have led to the creation of trade exchanges in environmental commodities. This exchange includes trading renewable energy certificates and carbon emissions including carbon credits and carbon offsets.
Commodity Market and Trading
The commodity market is where the trading of commodities takes place. This market is made up of international commodity exchanges like the Chicago Mercantile Exchange, the London Metal Exchange and the New York Mercantile Exchange. The officials at each exchange work to regulate the transactions and to ensure that the traded commodities meet adequate quantity and quality standards. When you understand how the commodities and how the exchanges behave, you will be much more successful when trading in the commodity market.
Traditionally, commodity trading has been done by floor traders who trade for their own investments on the trading floor or by firms of commodity brokers that place trades for their clients. These broker firms usually have a large number of brokers and cal place trades on most or all of the global market’s major commodity exchanges. One benefit of trading with a commodity broker is that they can provide you with advice and a great amount of information as a component of their service. If you are just learning how to trading in commodities, this may provide with you valuable support and information. On the other hand, the trading costs using a brokerage firm are usually high and may be too costly for you.
This has given rise to discount commodity brokerage firms. Discount brokers have reduced the costs of their service by focusing on trading rather than giving advice. Another way that these brokers have reduced their costs is by operating online brokerage firms. The trading of commodities online has grown within the past few years and many commodity brokers are competing against each other to offer the best price to investors. You can even find online brokers that offer benefits and bonuses, so if you want to get started in commodity trading it may be worth it to search for the best price.
Do you trade commodities? What advice would you give other investors about commodity brokers? Please leave your comments below.