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Commodity Market Trading Background Information

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 Commodity Market Trading Basics

Commodity Market TradingCommodity market trading, the exchanging of physical goods like food and electricity, is closely regulated by structured commodities exchanges. Within these highly regulated exchanges, commodity markets can be bought and sold under consistent standardized contracts.

The modern, more complex commodity markets we know today stem from the barter negotiations of the ancient Sumerians. They used tokens made of baked clay and shaped like sheep or goats as a sort of commodity money. When a trading contract was entered into, it was kept track of by placing a number of sheep- or goat-shaped tokens (equal to the number promised in return for the purchased good) into a sealed vessel. The date and time of delivery were also noted and the buyer was thus entered into a sort of contract very much like the futures contracts that are still used today. Eventually the token and sealed vessel system was phased out as gold and silver pieces became a universally standard, and much more convenient, type of commodity money.

Commodity Market Trading Today

Now, commodity market trading involves direct derivatives or physical trading. In 2010, commodities trading on a global scale were estimated to be at a level of about 2.5 billion official contracts. China and India’s exchanges have seen significant rises in both scale and importance as their value as consumers and producers of commodities increases. In fact, in 2009, China alone accounted for over 60 percent of worldwide exchange-traded commodities.

Energy-related products and precious metals make up the largest share of the funds engaged in commodity market trading. The United States has two governing bodies that regulate commodity markets. The Commodity Futures Trading Commission (CFTC) is considered the principal regulator of national commodity market trading while the National Futures Association enforces those regulations enacted by the CFTC.

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