Commodity trading is a unique segment of the market

The commodity market refers to one’s in which products are raw, rather than processed. It is categorized into:

 Investors have access to approximately 50 large commodity markets around the world with a volume of financial transactions far exceeding the volume of physical trades, the results of which goods are delivered.

Commodities markets deals

Commodity trading takes a large sector of the market. Because of it is the oldest and one of the safest assets, commodity has different types of contracts.

Each one is an instrument for making a deal. It is can be called a derivative, whose value comes from the product, which is called the base.

 

Derivatives that includes futures contracts, swaps, commodity exchange, forward contracts have passed into the fundamental trading instruments in commodity markets.

 

Futures are traded on regulated commodity exchanges. OTC contracts are bilateral contracts concluded as a result of bilateral negotiations between the contracting parties directly.

Types of contracts

Future contracts

Futures contracts serve as a financial instrument that get its value as a result of price movements of crude commodities. It can be used either to hedge investment positions or to try to capitalize on price movements. Planting and harvesting cycles created price fluctuations.

 

Futures were created to manage this risk. The futures contracts specifications for a particular product, quantity, grade, and location are pre-determined. The seller and buyer determine only the price and delivery time, which are fixed at the time of conclusion of the contract.

Spot contracts

A spot contract is an agreement under which delivery and payment either occur immediately or with a short delay. Meanwhile, derivatives markets require agreed standards, so trades can be held without a visual inspection of the goods.

CFD (or contract for difference) allows the trader to earn on the rise and fall of the market, without owning the product. 

 

In fact, CFD is a contract between two parties – a trader and a broker. Upon expiration of contract, participants receive the difference between opening and closing a position in cash.

CFD contracts

Hedging is the usual practice of agricultural production cooperatives. It insures by purchasing a futures contract for the same commodity. This is a protective mechanism to limit losses from possible negative scenarios in the financial markets.

 

Such measures can be compared with a lifebuoy, which is rarely used, but saves a person’s life. The price of such insurance is insignificant in comparison with possible losses. 

A commodity swap is an agreement between the parties, according to which one or more series of payments is determined by the price of the goods or the commodity index.

 

It is used by many consumers and commodity producers for long-term hedging against rising prices.

Swaps

Commodity trading regulators

Like any branch in the financial market, the commodity segment is regulated. 

 

In the United States, the Commodity Futures Trading Commission (CFTC) is the primary regulator of commodity futures markets. The National Futures Association (NFA) was formed in 1976 and is a self-regulatory organization in the futures industry.

 

The European Securities and Markets Agency (ESMA) is the EU-wide regulator of financial markets. ESMA sets position limits for commodity derivatives as described in MiFID II.

 

Commodity trading has existed for centuries and is still actual. This only proves the persistence and profitability of this segment of the financial market. It’s a perfect place with perfect options to buy and sell.

No matter how experienced or inexperienced the traders are, ROinvesting has a lot to offer.

 

The broker is equipped with high-tech trading platform, wide range of trading instruments and high qualified staff. ROinvesting open the gate for commodity trading and many other parts of the market.

 

Begin you trading activity with ROinvesting and make sure it is right for you. 

Trading Commodity at ROinvesting