DEFINITION of 'Exempt Commodity'

An exempt commodity is any exchange traded commodity other than those classified as an excluded commodity nor an agricultural commodity. Transactions in an exempt commodity may only take place between eligible contract participants or commercial entities, and cannot usually be executed on a trading facility.

Exempt commodity serves as a residual term for any of the commodities not specified in the Commodities Exchange Act (CEA). These commodities are exempt from the rules outlined in the CEA; however, these transactions are still subject to the prohibitions against fraud and price manipulation. Exempt commodities include energy and metals.

BREAKING DOWN 'Exempt Commodity'

The Commodities Exchange Act (CEA) of 1936 is legislation that regulates the trading of commodity futures in the United States.The CEA, for instance, establishes the statutory framework under which the commodities futures trading commission (CFTC) operates. The CEA also established classifications for types of futures contracts. Agricultural commodities futures are those standardized contracts for the delivery of agricultural products such as livestock, wheat, or other grain.

An excluded commodity is a commodity that is not susceptible to measures of influence or manipulation. Excluded commodities include most financial products and any relevant event associated with the commodity that is outside the control of any interested party. Excluded commodities are created for assets that have no cash market. When an investor trades interest or exchange rate futures, currency contracts or derivatives, that person is trading with excluded commodities.

Exempt commodities are those that fall under neither classifications. Examples of exempt commodities include energy commodities (such as crude oil or natural gas), chemicals, and metals (such as gold or silver). Carbon emissions allowances and weather derivatives are also considered exempt. Exempt commodities may be traded electronic exchange platforms. Exempt Commercial Markets are electronic trading facilities that trade exempt commodities on a principal-to-principal basis solely between persons that are eligible commercial entities. An eligible commercial entity is a market participant approved by the CFTC who has a demonstrable ability to make or take delivery of an underlying commodity of a contract; incurs risks related to the commodity; or is a dealer that regularly provides risk management, hedging services, or market-making activities to entities trading commodities or derivative agreements, contracts, or transactions in commodities.

Exempt commodities are considered exempt since they do not naturally fall under particular rules and guidelines that regulate agricultural commodities - such as rules of standardization, quality control, physical storage and transport. At the same time, they do not fit the mold of excluded commodities, such as financial instrument futures, which lack cash markets for the underlying assets.

  1. Commodity ETF

    A commodity ETF is an exchange-traded fund that invests in physical ...
  2. Against Actual

    Against actual is an order between two traders in which the traders ...
  3. Exchange-Traded Commodity (ETC)

    An exchange-traded commodity (ETC) gives traders and investors ...
  4. Commodity Swap

    A commodity swap is a contract where two sides of the deal agree ...
  5. Commodity Block Currency

    A commodity block currency is a currency whose value is closely ...
  6. Approved Delivery Facility

    Approved delivery facility is a location authorized by an exchange ...
Related Articles
  1. Investing

    Commodities trading: An overview

    Trading commodities can seem challenging to a novice trader but we break it down for you. Learn more about the history of commodities, the types of commodities, and how to invest in them.
  2. Investing

    Commodities Without Worries

    ETFs have made commodities investing easier, but look before leaping.
  3. Investing

    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.
  4. Investing

    The Role Of Speculators In The Commodity Market

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

    DBC: PowerShares DB Commodity Tracking ETF

    Find out about the PowerShares DB Commodity Tracking ETF, and explore a detailed analysis of the fund that tracks 14 distinct commodities using futures contracts.
  6. Investing

    How Commodity Pricing May Correlate to Inflation

    Commodity prices are believed to be a leading indicator of inflation. But, that may not alway ring true. Globalization contributes to changes in trends.
  7. Taxes

    Are You Missing Out On These Tax Exemptions?

    To lower your tax bill, make sure that you're taking all the exemptions that apply to you.
  8. Investing

    The 3 Best ETFs to Short Commodities (DNO, SZO)

    Learn about the strategies of three inverse commodity ETFs, and discover why they offer an alternative method to bet on a decline in commodity prices.
  9. Investing

    A New Commodities ETF Breaks With Tradition

    This new commodity ETF offers a unique spin on investing in this asset class.
  1. What's the difference between a commodity and a product?

    Understand the difference between commodities and products, and learn how they are connected to each other and to market ... Read Answer >>
  2. How can electricity be traded as a commodity by an individual investor?

    Learn the characteristics unique to electricity trading as a commodity and how investors can trade electricity futures on ... Read Answer >>
  3. 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 >>
  4. Is fiat money more prone to inflation than commodity money?

    Learn more about commodity and fiat money and some of the differences between them. Find out when the U.S. abolished the ... Read Answer >>
Trading Center