DEFINITION of 'Commercial'

Relating to commerce. In the investment field, the term "commercial" is generally used to refer to a trading entity engaged in business activities that are hedged by positions in the futures or options markets. A commercial plays an active role in the futures and forward markets, ranging from the initial production to the final sales. While the term is also widely used in other areas of finance and everyday life, it generally denotes an activity that pertains to business or one that has a profit motive.

BREAKING DOWN 'Commercial'

For example, commercial banking refers to banking activities focused on businesses, as opposed to consumer banking which deals with individuals. The colloquial meaning of the term "commercial" is an advertisement that runs on television or radio.

Commercial positions are important in the options and futures markets, since they generally provide an indication of hedging activity, while non-commercial positions denote speculative activity. The U.S. Commitments of Traders (COTS) reports supplied by the U.S. Commodity Futures Trading Commission display weekly open interest for commodities traded on futures exchanges, classified by commercial and non-commercial holdings.

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  3. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  4. Why do companies enter into futures contracts?

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  5. What does a futures contract cost?

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