Advantages Of Trading Commodities In The US Market
The history of commodity trading goes back to the ancient times when barter exchange worked, and civilizations flourished on the simple economic system of exchanging one commodity for another.
Today, the commodity market is a platform where the producers and consumers meet to hedge commodities for future consumption or production. In simple words, you enter into an agreement with an investor, and the trade happens based on the future price of a commodity.
It is a liquid marketplace where speculators, investors, and arbitrageurs play an essential role. With the help of free import export data online, one can get an idea of what to invest in.
Types Of Commodity Market
There are primarily two types of commodity market:
1. Spot Market
These are cash markets where immediate exchange happens through the trading of physical commodities.
2. Derivatives Market
This market works on a contractual basis where the owner gains control of a commodity for the future, on a price agreed upon today. Only after the contract expires, the delivery of commodities takes place.
Where Are Commodities Traded In The US?
The most reliable and most prominent platforms for commodity trading in the US are:
- Chicago Board of Trade (CBOT)
- Chicago Mercantile Exchange (CME)
- New York Board of Trade (NYBOT)
- New York Mercantile Exchange (NYMEX)
Types Of Commodities Traded In The Different US Platforms
The commodities traded in CBOT are gold, silver, oats, wheat, rice, soybean, corn, and ethanol. In addition, CME allows milk, butter, cattle, lumber, pork bellies, feeder cattle, and lean hogs.
The commodities traded in NYBOT are cocoa, coffee, juice, orange, sugar, and ethanol. While in NYMEX, gold, silver, oil, propane, aluminum, copper, palladium, platinum, heating oil, and electricity are traded.
Advantages Of Commodity Trading In The US
Entering the commodity market is not very convenient, as reflected by the US import export data by country. It requires several permissions and a special brokerage account. You can only trade as an outsider and not have ownership through shares. You can assess the market through the import export data available.
The commodity market is riskier, but once you do, it has its advantages:
1. Negative Correlation With Stocks
Commodities have low to no correlation with the stocks. When the price of raw materials rises, which essentially are the commodities themselves, the production costs rise, eventually leading to low profits and a decline in the share prices.
A rising inflation rate means the commodities are performing better, and a slowing inflation rate means the stocks are doing better.
For example, when the price of metal rises, the cost of constructing a building or housing facility also increases, which leads to a fall in demand for real estate lowering its share price.
Hence, due to this negative correlation, a loss in the share market would be made up by profits in the commodity market. Therefore, it is advisable to check the import export data before buying commodities to balance your portfolio.
2. Transparent Trading Platform
The trading of commodities happens on an electronic platform, eliminating any chance of fraud. In addition, the price is determined by the supply and demand, doing away with all the risks of manipulation.
The buyers and sellers remain anonymous to each other, and the price of a commodity is only displayed when their quotations match. Thus, the trade route is entirely unbiased and transparent in a way for all the market participants.
3. Hedge Against Geopolitical Conflicts
Geopolitical conflicts like riots, wars, or violent political events can disrupt the supply chain of commodities due to transportation barriers and lack of public mobility.
The disruption can create shortages of products in the market, eventually shooting up commodities’ prices exponentially. The negativity can lead to a fall in share prices. So, trading in commodities can help you maintain a profitable investment portfolio.
4. Benefits Of Inflation
When the demand for goods and services rises, it increases the prices of commodities or raw materials and even the production costs.
In an environment like that, the interest rates rise, the rate of borrowing also rises in effect. All of this lowers the profits of a manufacturing unit, leading to a fall in the share prices.
The commodity market comes to the rescue of the investors in a case like that, thus protecting them from the mishaps of inflation. You can always check the free import export data online to check the effects of inflation.
Preventing Malpractice In The US Commodity Market
After four leading investment banks were found snared in a metal manipulation probe in 2014, the commodity market has been in the spotlight. As a result, the Commodity Futures Trading Commission (CFTC) has taken control to prevent these unscrupulous practices from happening again.
As a result, it is now safe to trade, and US import export data by country shows that people from multiple nations have been efficiently trading in the market.