What is the commodity market?

Chicago Board of Trade (CBOT) trading floor

Commodity markets are markets where raw or products are exchanged. These raw commodities are traded on regulated commodities exchanges, in which they are bought and sold in standardized contracts. Typical commodities include metals (gold, silver, copper,… ), agricultural (wheat, corn, soy,…), and energy (electricity, oil, gas,…).

There are two major types of contracts:

• Spot trading: a transaction where delivery takes place immediately or with a minimum lag due to delivery constraints. Gold, silver and oil are very often spot traded.
• Futures contracts: is an agreement between two parties to exchange at some fixed future date a given quantity of a commodity for a price defined today. This is typically used for food and agriculture products like wheat, rice or frozen orange juice.

The largest commodity market in the world is the Chicago Board of Trade where over 50 different contracts are traded by 3600 members though open outcry and eTrading.