Commodities Traded and Its Types in Commodities Market
Did you know that commodities are also traded just like stocks? Did you know that there is a particular commodity market for the trade of commodities? The answer to both these questions is yes. So let us get to know more about the types of commodities traded in a commodity market.
What is a Commodity Market?
A commodity market is a market wherein the purchase and sale of commodities occur. Just as shares and debentures are traded in a stock market, commodities are traded in a commodity market.
Also Read: Difference between Shares & Debentures
A commodity market is a platform for trading various types of commodities, for instance, gold, tea, oil, raw materials, etc. This market offers easy and transparent access to established traders and new ones alike for the safe and systematic trade of commodities in a standardised manner.
As is the case with a majority of stock trading, the main aim of the traders in a commodity market is to make a profit from the sale and purchase of commodities. Therefore, the commodities traded in a commodity market as the forms of such trading have witnessed a drastic evolution over the years.
What are the Different Types of Commodity Markets?
There are two major types of commodity markets, namely the commodity spot market and the commodity derivatives market for commodity futures and options.
1.Spot market for commodity trading: As its name suggests, a spot market for commodities is a commodity market where actual physical commodities are traded. The commodities traded in such a market are bought or sold at a spot price and delivered immediately.
2.Derivatives market for commodity trading: A derivatives market for commodity trading is a market where commodity futures and commodity options are traded. Much like a derivatives market for stocks, a commodity futures and options market enables traders to enter into contracts for the future sale and purchase of commodities at a predetermined price.
Unlike a spot commodity market where the trade and delivery of commodities transpire on an immediate basis, a commodity futures and options market allows traders to use the spot price of a particular underlying commodity to decide a price for a derivatives contract.
After the expiry of the term of a commodity futures contract, the underlying commodities are delivered from the seller to the buyer at a price that has been previously agreed upon.
In the case of commodity options contracts, the execution of the contract and the delivery of the underlying commodities is contingent upon the choice of the option holder to exercise the option.
What are the Types of Commodities Traded in a Commodity Market?
There are various types of commodities traded in a commodity market. However, the commodities traded are primarily categorised into two groups, namely hard commodities and soft commodities.
1. Hard commodities:The category of hard commodities includes natural resources, for instance, crude oil reserves and metallic ores. These commodities have traditionally been recognised as being instrumental to the economic performance of a particular nation.
The main types of commodities traded in this category are as follows:
- Crude oil: Crude oil is one of the highest traded commodities in the world. Owing to its utility in the production of petroleum and diesel, crude oil is in demand in almost every country globally, thereby making the countries with huge reserves of the commodity well placed in the crude oil market.
- Gold: The old adage says that all that glitters is not gold. However, in the case of gold, it is true that it does not ever lose its glitter or value. Moreover, being amongst the highest-frequency commodities traded, gold is considered a relatively safe and stable investment avenue.
2. Soft commodities:Soft Commodities are commodities that are grown and have a limited shelf life. This category of commodities includes agricultural products and livestock. The prices of such commodities are generally heavily affected by the quantum of their production in a particular country and year and the associated demand.
Also Read: Agri Commodity Trading
Some of the most popular soft commodities traded in a commodity market are as follows:
The Commodity Markets in India
The commodity markets where commodities are traded in India are as follows:
- The Multi Commodity Exchange of India Limited (MCX)
- The National Commodities And Derivatives Exchange (NCDEX)
- The Indian Commodities Exchange (ICEX)
- The National Multi Commodity Exchange (NMCE)
- The ACE Derivatives Exchange (ACE)
- The Universal Commodity Exchange (UCX)
The Types of Commodities Traded in Commodity Markets in India
Some of the commodities traded in the commodity exchanges of India are as follows.
- Castor Seeds
- Natural Gas
- Fibre Gas
To Sum it Up
The trading of commodities has slowly but surely made huge strides in the past few decades. However, before starting trading in the commodity market, it is important to have a thorough knowledge of how it works. In addition to this, you must also be aware of the minutiae of the trade and price patterns for the relevant types of commodities traded in a commodity market.
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Frequently Asked Questions
The prices of various commodities traded in a commodity market are affected by several factors, including the quantity of their production, the prevailing demand, and other relevant macroeconomic and microeconomic elements. In addition to this, the prices of commodities such as crude oil are also influenced by international political events and the prevailing demand in various countries.
Yes, spices are amongst the types of commodities traded in the Indian commodity market. Some of the most popular spices traded as commodities in the Indian commodity markets are pepper, cardamom, coriander seeds, turmeric, and cumin seeds.
The Indian commodity markets allow the sale of several metals, including Gold, Copper, Silver, Zinc, Nickle, and Brass. It is important to note here that whilst gold and silver are traded as metals in some exchanges, they are traded in the form of bullions in others.