The Competition in Commodities Exchanges
Whether you’re an individual seeking to hedge commodity prices for the future or an investor interested in capturing price discrepancies and fluctuations in the global commodity markets, the commodity exchange will help you achieve your goals.
Commodity exchanges give investors and traders the opportunity to invest in commodities by trading futures contracts, options on futures, and other derivative products. By their very nature, these products are extremely sophisticated financial instruments used by only the savviest investors and the most experienced traders.
Most players in the futures markets are large commercial entities that use the futures markets for price hedging. For example, Hershey Foods Corporation is an active participant in cocoa futures because it wants to hedge against the price risk of cocoa, a primary input for making its chocolates. If you decide to trade cocoa futures contracts, remember that you’re up against some large and experienced market players.
At the end of the day, the commodity futures exchanges are your gateway to the futures markets; in fact, they are the commodity futures markets.
However, because of the fierce competition in these markets and the complexity of exchange-traded products, you want to trade directly in the commodity futures markets only if you have an iron-clad grasp of the technical aspects of the markets and a rock-solid understanding of the market fundamentals.
Commodity futures exchanges serve an important role in establishing global benchmark prices for crucial commodities such as crude oil, gold, copper, orange juice, and coffee. The exchanges are crucial for both producers and consumers of commodities.
Producers, who use commodities as inputs to create finished goods, want to shelter themselves from the daily fluctuations of global commodity prices. Producers may use the commodity exchange to lock in prices for these raw materials for fixed periods of time by using futures contracts. This process is known as hedging. Similarly, traders may use the commodity exchange to profit from these fluctuations, sometimes known as speculation.
Whether you’re an individual seeking to hedge commodity prices for the future or an investor interested in capturing price discrepancies and fluctuations in the global commodity markets, the commodity exchange will help you achieve your goals. A number of commodity exchanges operate worldwide, specializing in all sorts of commodities.