Commodities trading is a variety of investment where one can make cash by speculating on the cost of a certain commodity going down or up in days to come. Commodities are often the indispensable things that folks employ each day. Almost all of the times, these commodities are the basic necessities required by a modern society.
When talking about certain commodities being traded in the commodity market, it must meet precise circumstances to make it acceptable for trading. One of the conditions is that the commodity should be standardised. In trading rural and commercial commodities, the traded commodity should be in its basic raw and unprocessed state. In this case, Wheat could be traded in the commodity market though not flour.
Another condition a certain commodity has to meet is that the perishable kind should have acceptable lifespan. The explanation for this is that these commodities are traded with their delivery prepared deferred at a future time. There may need a long product life so the commodities could be delivered with its quality still good and untouched. Another condition a certain commodity should meet is that it ought to have a price that changes frequently making some doubt as well as chance to profit.
The history behind commodities trading in commodities developed from the farmer’s need to earn more from each crop. Before commodities trading started, the farmers were always in the power of the dealer when talking of pricing and selling their crops. Dealers typically set the costs and the farmers can’t to anything apart from accept the terms. In a way the farmers were being exploited by some dealers and so another kind of selling their crop.
In the search for having a more fair system of doing business, farmers began offering future harvest to interested buyers. The farmers started giving their own terms for the future harvests to dealers. The transaction consists of commodities offered as a certain price and to be delivered as a specified date. Contracts were then drawn up between the farmer and the interested buyer that specified the certain amount of commodity to be delivered at a particular time in the future. From this system, what is now known as futures trading has begun.
It was sometime in 1878 that a central dealing facility for such commodities contracts was established in Chicago. In this facility, farmers and dealers began initially in spot dealing of their grains that was immediately delivered upon a reached settlement in price. It eventually evolved into futures trading when farmers started committing future harvests to interested dealers willing to buy to ensure that their grains supply are maintained in the future.
In the beginning, futures trading initially consists only of a few farm commodities such as grains. But later on, a huge number of other commodities joined in. Now there are futures trading markets that deal in precious metals such as gold, silver and platinum. There is also a futures trading market for livestock and cattle as well as for energy products such as crude oil and natural gas. It has gone on to include futures trading in coffee, orange juice ad industrials such as lumber, cotton and even on interest rate bearing instruments such as currencies and stocks.
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