Commodity Exchange

A commodity exchange can refer to any organization or corporation that brings together stock traders and brokers. This then provides a platform for the trading of stocks and other financial and security issues to take place.

As well as this function, a commodity exchange can also provide facilities for redeeming issues and securities. Securities which are traded on the commodity exchange often include company shares and shares issued by derivatives or unit trusts.

There are a number of different factors that need to be considered before investing in the stock market if the trading is to be successful. Decisions will need to be made about what stocks to invest in and these decisions will be influenced by a number of considerations.

– Establishing the type of return. When company shares are purchased the owner of the shares also owns a small part of that company. They receive money from the purchase of the shares and this entitles the investor to a share of any profits. Therefore it is important to perform a fundamental analysis of the stocks and give this as much consideration as the potential return that the buyer will receive.

– Past records of the stocks. This generally depends on the price to earning, or PE ratio that is usually calculated during the dividend release time. The dividend is the total of the profits that is to be divided among the shareholders. The time frame for calculating this dividend will vary between companies as will the method and timescale for releasing the profits.

– Future performance of the stocks. How stocks purchased through a commodity exchange perform in the future is subject to a number of different influences. Most of these influences can be categorized as either internal or economic issues. Economic issues refer to influences in the economic market that may have an effect on the companies profit such as exchange rates, the labor market and the borrowing power of the company. Internal issues include financial planning, policy direction and any problems or issues regarding leadership of the company. Reports have found that policy direction may be the single biggest influence on the future performance of stocks and can have the most visible impact.

– Minimum amount required to invest in the commodity exchange market. Most commodity exchanges do not have a specified minimum amount that can be invested. The amount of money that is invested should correlate to the experience of the investor. People who are new to investing through a commodity exchange may benefit from only initially investing small amounts while they develop their own strategies and techniques for investing. More experienced investors are more likely to use higher amounts of money as the experience they have may mean that their money is less at risk.

Commodities Exchanges

A commodity exchange is the type of market where commodities are dealt with. Almost any article of trade are bought and sold in commodity exchanges. Most of the leading commodity exchanges are found in USA and the UK. There are commodity exchanges existing in various other countries too. Based on the goods that are being traded and on their location and size, commodity exchanges differ significantly.

Certain exchanges are famed for trading in particular products. For example, the Chicago Board of Trade, the largest futures exchange, is famous for its trading activities in coffee and sugar. London is known for its metal exchange and petroleum exchange and so on and so forth. One can find commodity exchanges spread throughout the world in places like Brazil, China, Canada, South Africa, Japan, and Russia, to mention only a few countries.

Commodity exchanges commonly deal with agricultural products like Soya products, sunflower seeds, corn, beans, coffee, or other grains. Dairy products and meat are also items which are extensively traded through commodity exchanges. The closing prices set by leading commodity exchanges have huge impact on the trade around the world. Petroleum products like crude oil, gasoline, and precious metals are also dealt widely by commodity exchanges.

One can trade in futures or options in these commodity exchanges. When it comes to futures, one is bound by a contract which specifies the delivery of a commodity at a specific date, whereas in the case of options, it is not so. Buying of options does not bind one to buy anything. Instead, one is given the right to buy certain products for a price, but one need not do so, if required. The flip side with options is that the deal expires after a specified time period.

Most of the commodity exchanges make their closing prices public. Trading is typically done on a large scale. This is the reason why smaller producers and investors don?t trade in large commodity exchanges. However, the bigger traders on the commodity exchanges work closely with smaller traders and businesses, giving them an opportunity to trade their products on a global scale. The traders on commodity exchanges charge a fee from the smaller businesses for doing so.

The Commodity Exchange Act – Knowing the Gist

The Commodity Exchange Act is a United States congressional act ratified in 1936. Its basic function is to regulate futures trading of agricultural products in an organized and standardized method. Futures trading is a trading option wherein the underlying assets or commodities, its delivery, the mode of delivery, and other specifics relative to the ordered goods or services are clearly stipulated in a futures contract. Futures trading is doing commerce by ordering today for a commodity that will be delivered at an agreed price in the future.

Where It All Began: A History

The Commodity Exchange Act of 1936 is an offshoot of the Grain Futures Act of 1922. This act was made by the U.S. government in cognizance of the need to come up with an organized way of doing futures trading. The Commodity Exchange Act gave way to the U.S. Congress’ establishment of Commodity Exchange Commission, which delegated the duties of regulating the trade futures to the Secretary of Agriculture. The putting up of a commission paved the way to the establishment of Commodity Exchange Administration to enact the regulatory obligations.

Over time, some significant amendments and revisions were made to further substantiate the law. In 1974, the regulatory authority was transferred to Commodity Futures Trading Commission. When the efforts to regulate futures started in 1920s, the only commodity being regulated were agricultural products, but eventually, other commodities started to be subjected to regulation such as livestock, energy commodities, bonds and securities. and foreign currencies. What started as a simple futures regulatory act gave way to the creation of more specified and effective laws. The creation of Commodity Futures Trading Commission in 1974 resulted to the establishment of the National Futures Association of 1982.

What Objectives and Functions Does It Serve

The Commodity Exchange Act of 1936 includes the following functions and main objectives:

It prohibits the manipulation of prices of the commodities subjected in the futures contract.
It provides that regulated commodities subjected to futures trading should only be traded on licensed contract market, thus protecting both the buyer and seller against illegal traders and fraudulent dealers.
Brokerage firms handling clients were required to register at the U.S. federal government. This way, the buyers and sellers are ensured that they are dealing with legal brokers and agencies.
The Commodity Exchange Authority is an independent body under the Department of Agriculture; therefore, its independence eradicates any government official’s ulterior interest to control or influence levels of margin in the futures trading industry.
The act also provides the government the authority to control the size of speculative positions by individual traders.

The Commodity Exchange Act also intends to prevent commodity options trading to regulated and standardized commodities since such instruments can be highly speculative.