Commodity Market Generally

Commodity Market Generally

Commodity Market, generally, a market in which commodities are exchanged; particularly the international markets for food and raw materials, cocoa, wheat, tin, wool, etc. For many of these products the market is more or less worldwide: prices for uniform grades of, say, wheat, tend to move closely together in all the main trading centres. London and New York are important among the centres in which world commodity transactions are concentrated. In each centre the market may be housed in a building or it may be a 'telephone' market. Deals are normally made between buying and selling brokers acting for users and producers respectively. If the goods are closely classified according to internationally agreed standards, it may not be necessary for buyers or sellers to inspect them in warehouses; or if such agreed standards do not exist (as in wool) storage and inspection may be necessary, and sales will often be made by regular public auctions such as in the London Wool Exchange.

Commodity markets may deal in 'actuals' or 'futures . Trading in the 'actuals' market may be for 'spot' (current) supplies or for 'forward' delivery at a future date. In either case a wide variety of individual grades and qualities of commodity are traded: 'forward' transactions will also embrace a wide variety of delivery times and conditions. Both need to be distinguished from the market in'futures contracts which many organized commodity exchanges provide. Unlike transactions in 'actuals' markets, futures transactions are usually in a standard grade of the commodity and the contracts traded are also highly standardized. The purpose is to provide a smooth market to facilitate the hedging' of risks of price changes so that, for example, a merchant carrying stocks of a commodity can, by selling' futures when he buys 'actuals' (and buying in 'futures when he eventually sells his stocks of the commodity), 'hedge' any risk of undesirable gains or losses due to price changes. Since price movements in the 'actuals' and 'futures market will tend broadly to be related, the merchants loss or gain on his 'actuals' transactions will tend approximately to be balanced by an opposite gain or loss in the 'futures market. A smoothly working 'futures market thus enables the risks of price changes to be interchanged between traders whose interests in price changes are opposite.

'Commodity Shunting.' See Exchange Control.

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