What is a commodity market?
Commodity market is a place where trading in commodities takes place. It is similar to an Equity market, but instead of buying or selling shares one buys or sells commodities.
How old are the commodities market?
The commodities markets are one of the oldest prevailing markets in the human history. In fact derivatives trading started off in commodities with the earliest records being traced back to the 17th century when Rice futures were traded in Japan.
What are commodity exchanges?
Commodity exchanges are institutions, which provide a platform for trading in 'commodity futures' just as how stock markets provide space for trading in equities and their derivatives. They thus play a critical role in robust price discovery where several buyers and sellers interact and determine the most efficient price for the product. Nepal commodity exchanges offer trading in `commodity futures' in a number of commodities.
World-over one will find that a market exits for almost all the commodities known to us. These
commodities can be broadly classified into the following:
1. Precious Metals: Gold, Silver, Platinum etc
2. Other Metals: Nickel, Aluminum, Copper etc
3. Agro-Based Commodities: Wheat, Corn, Cotton, Oils, Oilseeds, etc.
4. Soft Commodities: Coffee, Cocoa, Sugar etc
5. Energy: Crude Oil, Natural Gas, Gasoline etc
The exchange-traded markets are essentially only derivative markets and are similar to equity derivatives in their working. I.e. everything is standardized and a person can purchase a contract by paying only a percentage of the contract value. A person can also go short on these exchanges. Also, even though there is a provision for delivery most of the contracts are squared-off before expiry and are settled in cash. As a result, one can see an active participation by people who are not associated with the commodity.
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