What is Commodity?

Any goods having universal quality and price, traded throughout the world is known as commodity. Commodity price fluctuates based on change in demand and supply globally. Major commodities are traded in both spot and derivative Exchange.

CBOT is the first Commodity Exchange in the world established in 1848. Commodity Exchange launched with sole purpose of facilitating commodities trade and its stakeholders. Automated trading system in commodity market was launched later in 1960’s. HCC has segmented commodities into Bullions, oil & Oil Seeds, Metal, Fiber, Cereals, Energy and others sectors for the online trading.

What Is Commodity Trading?

Commodity futures markets allow commercial producers and commercial consumers to offset the risk of adverse future price movements in the commodities that they are selling or buying.

In order to work a futures contract must be standardised. They must have a standard size and grade, expire on a certain date and have a preset tick size. For example, corn futures trading at the Chicago Board of Trade are for 5000 bushels with a minimum tick size of 1/4cent/bushel ($12.50/contract).

A farmer may have a field of corn and in order to hedge against the possibility of corn prices dropping before the harvest he might sell corn futures. He has locked in the current price, if corn prices fall he makes a profit from the futures contracts to offset the loss on the actual corn. On the other hand, a consumer may buy corn futures in order to protect against a rise in the cost of corn.

In order to facilitate a liquid market so that producers and consumers can freely buy and sell contracts, exchanges encourage speculators. The speculators objective is to make a profit from taking on the risk of price fluctuation that the commercial users do not want. The rewards for speculators can be very large precisely because there is a substantial risk of loss.