Learning about the commodity market is like swimming in the ocean because it starts with what is commodity and the ending is very long. Many professionals have published many articles and journals through which the students can easily know and get answers for commodity market homework solutions.
This commodity market homework solution gives the complete idea about what is commodity, commodity market, types of commodities, strategies of commodity market and its importance clearly. The expert professionals give complete idea about the topic which is highly helpful for the students who deal with the subject.
What are commodities?
Commodities are the movable assets and there are several types of commodities and they are perfectly grouped into three categories they are: energy, metal and agriculture.
Commodity market is the common place where the sellers and the buyers meet and trade any types of goods in bulk. For example food grains, metals, electricity materials, cotton etc are considered as commodities. However, now foreign currencies, bandwidth, emission credits have also become a part of commodities.
According to the New York Mercantile Exchange “A market will flourish for almost any commodity as long as there is an active pool of buyers and sellers”. According to this definition A market will welcome any type of commodity until there is the great demand and supply for the particular commodity. To consider an item as commodity it must fulfill three conditions;
- The commodity must be standardized.
- The commodity must be in raw form and must be utilizable for agriculture and industrial purpose.
- The price of the item must be justifiable to create the demand in the market.
These three are very important factors that put the perfect seal on the item and specify it as a commodity.
The expert professionals who are offering the commodity market homework solution are very well experienced in the field. Students easily get solutions for all their queries in one stop. The students can clearly read, understand and evaluate the work easily after reading about the commodity market and its working mechanism.
How the commodity market works
The buyers and the sellers trade commodities in two types of market spot market or in the futures market. Spot market or cash market, here both the buyers and the sellers complete their transaction immediately. This transaction is totally based on the current price on the commodity.
The commodity Futures Trading Commission (CFTC) regulates the commodities futures trading via its enforcement of the Commodity Exchange Act of 1974 and the Commodity Futures Modernization Act of 2000. This trading commission makes sure about the effectiveness, competitiveness and integrity of the commodity and protects the buyer or seller against the manipulation, fraud and foul trading.
There are six commodity exchanges in U.S.
- The New York Mercantile Exchange
- The Chicago Board Of Trade
- The Chicago Mercantile Exchange
- The Chicago Board Of options Exchange
- The Kansas City Board Of Trade
- Minneapolis Grain Exchange
The New York Mercantile Exchange INC is the largest physical commodity futures exchange, in this the opening hours and electronic trading are combined in this exchange and it works nearly 22 hours a day. The commodities exchanges never fix the prices on the traded commodities. The prices of commodities are fixed based on the demand and supply of the particular commodity.
The members who act on behalf of the customers engage in the open out-cry auction. During the auction the buyers and the sellers post their bids on the commodities. If the bids are mutually accepted then the trade will be recorded manually and electronically. Finally the exchange announces the price information to the media services and other agencies who report the trade prices around the world.
This is how the commodity markets announce the price on the commodities. The commodities are traded by applying strategies. The commodity trading strategies are very important and it should be framed before trading is started. The commodity trading strategies completely spin around breakout methodology or range trading. Each commodity trading strategy has its own advantages and disadvantages. It is totally based on the individual how he selects the strategy and completes his commodity trade.
Types of commodity trade
- Range trading strategy- according to this strategy the commodities are purchased in the bottom end and sold in the top of that range.
- Trading breakouts- many of the professional traders use this strategy when they manage huge money and try to develop the major trend. In this strategy the trader purchase the commodity that creates the new highs or sells the commodity when it makes the new lows.
- Fundamental trading strategy- according to this strategy the trade is done usually under the specific rules such as when to buy and when to sell the commodities. According to this strategy the trading depends on the supply and demand for the particular commodity.
Why it is important?
Commodities are the common raw materials used by everyone according to their necessity. The commodities exchange fixes the price on almost all the goods used by the industries or individuals around the world. Little changes in the price of the commodity can highly affect the economy and kicks the political and social action in the form of increasing the tax or subsidies and other policies, innovation and other supply and demand actions. In some cases the buyers and the sellers trade the commodities in the futures market the producers (traditional produces) bear the risk of low or negative prices when they come in forcible situation to sell the commodity. In general the markets help the buyers and sellers to operate flexibly and more efficiently for the best of all.