Commodity Market

Loading the player...

What is the 'Commodity Market'

A commodity market is a physical or virtual marketplace for buying, selling and trading raw or primary products, and there are currently about 50 major commodity markets worldwide that facilitate investment trade in approximately 100 primary commodities.

Commodities are split into two types: hard and soft commodities. Hard commodities are typically natural resources that must be mined or extracted (such as gold, rubber and oil), whereas soft commodities are agricultural products or livestock (such as corn, wheat, coffee, sugar, soybeans and pork).

BREAKING DOWN 'Commodity Market'

There are numerous ways to invest in commodities. An investor can purchase stock in corporations whose business relies on commodities prices, or purchase mutual funds, index funds or exchange-traded funds (ETFs) that have a focus on commodities-related companies. The most direct way of investing in commodities is by buying into a futures contract. A futures contract obligates the holder to buy or sell a commodity at a predetermined price on a delivery date in the future.

Major Commodity Exchanges

The major exchanges in the United States, which trade commodities, are domiciled in Chicago and New York with several exchanges in other locations within the country.

The Chicago Board of Trade (CBOT) was established in Chicago in 1848. Commodities traded on the CBOT include corn, gold, silver, soybeans, wheat, oats, rice and ethanol. The Chicago Mercantile Exchange (CME) trades commodities such as milk, butter, feeder cattle, cattle, pork bellies, lumber and lean hogs.

The New York Board of Trade (NYBOT) commodities include coffee, cocoa, orange juice, sugar and ethanol trading on its exchange. The New York Mercantile Exchange (NYMEX) trades commodities on its exchange such as oil, gold, silver, copper, aluminum, palladium, platinum, heating oil, propane and electricity.

Key commodity markets in regional centers include the Kansas City Board of Trade (KCBT) and the Minneapolis Grain Exchange (MGE). These exchanges are primarily focused on agriculture commodities. The London Metal Exchange and Tokyo Commodity Exchange are prominent international commodity exchanges.

Commodities are predominantly traded electronically; however, several U.S. exchanges still use the open outcry method. Commodity trading conducted outside the operation of the exchanges is referred to as the over-the-counter (OTC) market.

Regulation of Commodity Markets

In the United States, the Commodity Futures Trading Commission (CFTC) regulates commodity futures and options markets. The CFTC's objective is to promote competitive, efficient and transparent markets that help protect consumers from fraud, manipulation and unscrupulous practices. Regulation of commodity markets have continued to remain in the spotlight after four leading investment banks were caught up in a precious metals manipulation probe in 2014.

RELATED TERMS
  1. Commodity ETF

    Exchange-traded funds that invest in physical commodities such ...
  2. Commodity

    1. A basic good used in commerce that is interchangeable with ...
  3. Commodities Exchange

    An entity, usually an incorporated non-profit association, that ...
  4. Commodity Trader

    Unlike stock traders, who buy and sell equities, commodity traders ...
  5. Cash Price

    The actual amount of money that is exchanged when commodities ...
  6. Long The Basis

    An individual or company that owns or has purchased a commodity ...
Related Articles
  1. Markets

    Understanding the Commodity Market

    There are currently 50 physical and virtual commodity markets worldwide where almost 100 primary commodities trade through the exchange of ownership rights.
  2. Markets

    When Will it Be Safe to Buy Commodities?

    When will it be safe to buy commodities (and which ones)? A closer look at the commodities markets and how they move.
  3. Trading

    An Overview Of Commodities Trading

    Commodities markets, both historically and in modern times, have had tremendous economic impact on nations and people. Investing in commodities can quickly degenerate into gambling or speculation ...
  4. ETFs & Mutual Funds

    Commodity Funds 101

    These funds make investing in gold, oil or grain an easier prospect.
  5. Managing Wealth

    How To Invest In Commodities

    Find out which futures, options or funds will be your perfect commodity portfolio fit.
  6. Managing Wealth

    The Role Of Speculators In The Commodity Market

    Contrary to popular belief, speculators are important for the market. Find out exactly what they do.
  7. Trading

    Commodities: The Portfolio Hedge

    These diverse asset classes can provide downside protection and upside potential. Find out how to use them.
  8. Markets

    What are Commodities?

    A commodity is a basic good used in commerce that is interchangeable with other commodities of the same type. Commonly traded commodities include gold, beef, oil, lumber and natural gas. Additional ...
  9. Markets

    All About Liquid Commodities

    You might hear 'liquid commodities' and think of an auction, but they're actually a high-volume, fast paced financial product suitable for day traders.
  10. Markets

    3 Reasons to Invest in Discounted Commodities

    Though they're selling at depressed prices, there are several reasons that it could make sense to invest in commodities now.
RELATED FAQS
  1. Who sets the price of commodities?

    Commodities are extremely important as they are essential factors in the production of other goods. A wide of array of commodities ... Read Answer >>
  2. How can I invest online in oil, gold and other commodities?

  3. Can commodities also be investments?

    Learn about the commodities trade and several different ways investors may participate. Find out about some of the advantages ... Read Answer >>
  4. Can mutual funds invest in commodities?

    Learn how investors can use commodity mutual funds to diversify their portfolios, and discover why mutual funds may be less ... Read Answer >>
  5. Do hedge funds invest in commodities?

    Learn about hedge funds that invest in commodities. Read about Commodity Trading Advisors who focus specifically on trading ... Read Answer >>
  6. What is the history of futures?

    Explore the history of futures trading and the origin of the major commodity futures trading exchanges in England and the ... Read Answer >>
Hot Definitions
  1. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  2. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  3. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  4. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  5. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
  6. Weighted Average Life - WAL

    The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, ...
Trading Center