All you need to know about Commodity Trading

What is it?

Commodity trading facilitates trading in various commodities. It happens in two ways – Spot and Derivative. In the spot market, the commodities are sold and bought immediately while in the derivatives market, financial commodities that are based on commodities are traded.

How commodity trading evolved?

What started some 6000 years ago in China with Rice futures is now a lucrative investment option for many. Earlier, commodities that were traded included livestock, spices, gold, etc. The economic development led people to trade in oil. With advancement, futures and hedging also became a part of commodity trading.

Are there any risks involved in Commodity Trading?

There are numerous risks that are involved in commodity trading. Some of them are:

  • Corporate Governance Risk : The risk of Fraud.
  • Speculative Risk : Risk of price speculating by traders in order to make more profit.
  • Geopolitical Risk : Spread of natural resources to different countries is one of the major risks of commodity trading.

All in all, Commodity Trading is one of the oldest human activities and central to a country’s as well as global economy.

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