Commodities Trading

Written by Jacey Harmon
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Commodities trading occurs in two forms, a cash market and futures market. The cash market is straight forward; the selling of a commodity for cash with immediate delivery. The futures market is the selling of a specified commodity for delivery sometime in the future. There are two types of commodities futures traders, hedgers and speculators.

A commodity is defined as a food, metal or any fixed physical substance that traders trade through the futures market. Oil is one of the world's most popular futures traded commodities. When I mean popular I don't necessarily mean it is the most traded commodity but that it is the commodity that garners most of the attention. Pretty much everything from copper to corn is a commodity that is traded through futures markets.

Hedgers and Speculators in the Commodities Futures Market

Hedgers are those who grow, produce, handle or rely on a commodity for sale or use. To qualify as a hedger you must participate in the cash markets. Hedgers utilize commodities futures to offset future price fluctuations in their respected industry. By hedging commodities, providers and users can ensure a price for a selected commodity.

Speculators are traders who have no intention of using or handling the selected commodity in any way. Instead, speculators intend to profit from price fluctuations in commodities prices. Speculators utilize a variety of analysis techniques such as technical and fundamental analysis to time buys and sells. Speculators are an integral part of the commodities markets as they ensure a liquid market for hedgers to participate in.

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