Commodity Paper

AAA

DEFINITION of 'Commodity Paper'

A loan or advance for which raw materials owned by the borrower serve as collateral. Bills of lading (if the commodities are in transit) or warehouse receipts or inventory lists (if the commodities are in storage) may be used as proof of collateral. The lender does not actually take possession of the commodities unless the borrower defaults on the loan.

INVESTOPEDIA EXPLAINS 'Commodity Paper'

Commodities are raw materials (production goods) such as oil, grain, gold, copper, coffee, cocoa, lumber, cotton, wheat, corn, sugar, and natural gas. Different tools are available for investing in commodities, such as futures, options, stocks, ETFs and ETNs. Commodity paper was at the center of the Salad Oil Scandal. Allied Crude Vegetable Oil used fraud to make inventory appear many times what it was, and then borrowed against the erroneous inventory receipts.

RELATED TERMS
  1. Commodity Market

    A physical or virtual marketplace for buying, selling and trading ...
  2. Commodity

    1. A basic good used in commerce that is interchangeable with ...
  3. Chicago Board Of Trade - CBOT

    A commodity exchange established in 1848 that today trades in ...
  4. Salad Oil Scandal

    One of the worst corporate scandals of its time. It occurred ...
  5. Delivery Date

    1. The final date by which the underlying commodity for a futures ...
  6. Futures

    A financial contract obligating the buyer to purchase an asset ...
RELATED FAQS
  1. How is fair value calculated in the futures market?

    The fair value is the theoretical calculation of how a futures stock index contract should be valued considering the current ... Read Full Answer >>
  2. What are the major types of insurance policies that insurance companies will offer?

    The principal commodities used in producing chemicals are oil, natural gas, coal and a wide variety of metals and minerals. ... Read Full Answer >>
  3. How can I calculate the Macaulay duration of a zero-coupon bond?

    The funds from operations is a measure of the amount of cash flow that a business's operations generates. Real estate investment ... Read Full Answer >>
  4. What is the difference between speculation and hedging?

    Speculators and hedgers are different terms that describe traders and investors. Speculation involves trying to make a profit ... Read Full Answer >>
  5. What is the difference between underwriting and investment income for an insurance ...

    Underwriting and investing are two different methods an insurance company uses to generate income. The underwriting income ... Read Full Answer >>
  6. What are the benefits of using open interest as an indicator?

    Open interest is a good technical indicator of trends and trend reversals for derivative securities markets. The open interest ... Read Full Answer >>
Related Articles
  1. Active Trading

    Grow Your Finances In The Grain Markets

    Hedging with futures can protect those who buy and sell commodities from adverse price movements.
  2. Active Trading

    Commodities: The Portfolio Hedge

    These diverse asset classes can provide downside protection and upside potential. Find out how to use them.
  3. Options & Futures

    Fueling Futures In The Energy Market

    The energy market influences every aspect of our lives, and these four options are its driving force.
  4. Options & Futures

    Trading The Soft Commodity Markets

    Learn the contract specifications for a few of the most heavily traded commodities.
  5. Active Trading

    How Companies Use Derivatives To Hedge Risk

    Derivatives can reduce the risks associated with changes in foreign exchange rates, interest rates and commodity prices.
  6. Options & Futures

    Commodities That Move The Markets

    Find out how the everyday items you use can affect your investments.
  7. Chart Advisor

    Commodity Traders are Watching These 3 Charts

    As we head towards the summer months, many commodity traders are looking to diversify their holdings and to protect themselves against inflation.
  8. Investing Basics

    Understanding Non-Deliverable Forward (NDF)

    A foreign exchange hedging strategy where the parties agree to settle the profit or loss in a foreign currency futures contract before the expiration date.
  9. Chart Advisor

    Copper Is Headed For A Pullback

    While copper prices have stabilized over the past few weeks it may still be too early for most commodity traders to enter a long position.
  10. Professionals

    A Look at How the Ultra-Wealthy Invest

    Ultra-wealthy investors are cautious this year as they approach the markets. Many target mutual funds and stocks, but most also diversify their portfolios.

You May Also Like

Hot Definitions
  1. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  2. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  3. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  4. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
  5. Rule Of 70

    A way to estimate the number of years it takes for a certain variable to double. The rule of 70 states that in order to estimate ...
  6. Risk Premium

    The return in excess of the risk-free rate of return that an investment is expected to yield. An asset's risk premium is ...
Trading Center