x Do you intend to invest in Commodity Market and want to know how it works?
x Are you interested in the role and effects of the Commodity Market and what you buy and sell?
x Are you wondering if you will face any risks if you invest in Commodity Market?
Commodity market in English is Commodity Market. PROSHIP.VN will collect knowledge from many reliable sources to help businesses and investors understand the term commodity market. Along with that, we also point out what risks you may encounter when participating in the commodity market. From here, it is easy to predict fluctuations in exchange rates, weather impacts, legality, global markets, etc. to have more reasonable investment considerations and calculations.
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What is Commodity Market? What to buy and sell?
Commodity Market concept
What is Commodity market? Commodity Markets or commodity markets are known as traditional physical or virtual exchanges that help businesses buy, sell or trade raw or primary products. Smart investors can participate in the commodity market through companies directly related to commodities or sign futures contracts, options contracts, and participate in ETF funds.
Normally, Commodity Markets includes 4 main products: agricultural products, industrial raw materials, metals and energy. This market will create conditions to expand production scale, promote consumption, reserve goods and diversify product types while stabilizing production and supply sources.
What does Commodity Markets buy and sell?
Commodity Markets are divided into two categories: hard goods and soft goods, specifically:
- Hard goods are products exploited and excavated from natural resources such as gold, ore, oil, rubber, etc.
- Soft commodities are mainly agricultural and animal products. Such as: Corn, coffee, fruit, meat...
Some major commodity exchanges in the world include:
- Chicago Mercantile Exchange (CME): Provides trading in currency products, indices, exchange rates, meat...;
- London Metal Exchange (LME): Provides trading of metal-related items;
- Intercontinental Exchange (ICE): Provides trading of energy, oil and agricultural products...;
- Tokyo Commodity Exchange (TOCOM): Specializes in trading metals, energy, agricultural products, and natural rubber;
- New York Mercantile Exchange (NYMEX): Specializes in trading metals and energy commodities.
>>See more: What is Giffen Good?
How does Commodity market work, what are its requirements and roles?
How commodity markets work
Commodity markets include physical trading and derivatives trading through the use of spot prices, futures contracts and options contracts.
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To hedge against price risk, for centuries, people have used derivatives trading. Derivative transactions are a type of contract transaction with a determined contract value based on the value of the commodity (underlying asset). Transactions will be carried out through centralized commodity exchanges or decentralized markets.
More and more derivatives are formed in trading: forward contracts, standard forward contracts, swap contracts. In 2003, the exchange-traded fund (ETF) was born, allowing investors to trade gold based on electronic gold without needing to own physical gold, insurance and storage costs like the London bullion market.
Requirements for commodity markets
It is known that in the US, the Commodity Futures Trading Commission (CFTC) controls the commodity futures and options markets. The CFTC's goal is to promote competitive, efficient, and transparent markets that help protect consumers from fraud, manipulation, and unethical practices. Commodity market regulation has continued to be in the spotlight after four leading investment banks were caught up in a precious metals manipulation investigation in 2014.
Role and effects of commodity markets
For businesses, the value of the commodity market is expressed in:
- Environment for conducting business transactions of individuals and organizations across the country, helping sellers and buyers negotiate agreements and transactions through modern telecommunications means;
- Buyers and sellers can compete equally with each other thanks to the relationship between supply and demand. The number of purchases or sales will clearly show whether the size of the market is large or small. The volume of goods and services along with prices will also be determined by the supply-demand relationship;
- Shorten the transaction process of organizations and economic entities in terms of goods, production methods and workers' decisions through price decisions;
- Customers (including existing and potential customers) participate in the commodity market to satisfy their own needs and desires.
The effects of the commodity market include:
- Promote consumer demand in the community and demand for product quality in production;
- Create conditions to expand the scale of goods production and ensure that goods always reach buyers in full and promptly;
- Reserve goods for consumption and production, ensuring balance between supply and demand;
- Stabilizing production and supplying goods to consumers;
- Develop richness and diversity for production and consumption activities.
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Product and market risks when investing in Commodity Markets
The concept of what a commodity market is, how it works, what products to buy and sell, what are the requirements, etc. have been answered. Proship will continue to share about the risks that Investors may encounter when investing in the commodity market:
Product risks
When investing in Commodity Markets (commodity markets), investors need to consider the following risks:
- About price: Prices of products can change quickly and continuously. Significant fluctuations can occur suddenly due to factors such as weather, output, demand and national production plans;
- Regarding the ability to perform contracts: If you invest in commodity products through buying and selling futures contracts, the risk of bankruptcy of the trading partner can cause great losses;
- Financially: Investing in Commodity Markets easily causes large financial risks, especially for individual investors or those with no investment experience. Investing in commodity products does not guarantee profitability and is easy to lose capital;
- Legal: When investing in Commodity Markets, investors need to clearly understand international and domestic laws and regulations. Failure to comply with regulations can lead to serious legal consequences;
- About the global market: The commodity market depends on many different factors and is linked with many other markets. A country's economic policy or global market fluctuations greatly affect the prices of commodity products.
Market risks
When investing in Commodity Markets, investors will face some of the following risks:
- Regarding price: Investors must face the possibility that prices will decrease or increase suddenly in a short period of time. This can easily lead to damage if there is no good risk management and protection plan;
- About the world and politics: Political changes and international events can affect the value of goods. For example, a world war can create some new risks for investing in commodities such as oil, copper, steel, etc.;
- Regarding exchange rate fluctuations: Prices of items are often based on the currency of the manufacturing country. Therefore, fluctuations in exchange rates can affect the value of the investment;
- About weather: Weather effects such as floods, droughts or storms can reduce output and increase product value;
- Regarding technical issues: Technical issues such as production or transportation interruptions may affect prices.
=> In short, in order to minimize risks, investors should carefully learn about the market and influencing factors before investing, use risk management techniques and to minimize losses, use Place stop loss orders.
Proship Logistics has quickly compiled basic knowledge to help investors know what the commodity market is , how the commodity market works... To invest in the commodity market, you only need a small amount of capital but high profits. Profits are extremely flexible based on market price fluctuations. Please continue to follow the next shared news article to update more useful knowledge and contact 0909 344 247 to be provided with cheap Multi-modal transport services.
Shipping contact hotline:
Ms Tien: 0909 986 247
Ms Dung: 0939 999 247
Ms Duy: 0902 581 247
