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A commodity market is a market that trades in the primary economic sector rather than manufactured products, such as
cocoa Cocoa may refer to: Chocolate * Chocolate * ''Theobroma cacao'', the cocoa tree * Cocoa bean, seed of ''Theobroma cacao'' * Chocolate liquor, or cocoa liquor, pure, liquid chocolate extracted from the cocoa bean, including both cocoa butter an ...
, fruit and
sugar Sugar is the generic name for sweet-tasting, soluble carbohydrates, many of which are used in food. Simple sugars, also called monosaccharides, include glucose, fructose, and galactose. Compound sugars, also called disaccharides or do ...
. Hard commodities are mined, such as
gold Gold is a chemical element with the symbol Au (from la, aurum) and atomic number 79. This makes it one of the higher atomic number elements that occur naturally. It is a bright, slightly orange-yellow, dense, soft, malleable, and ductile ...
and
oil An oil is any nonpolar chemical substance that is composed primarily of hydrocarbons and is hydrophobic (does not mix with water) & lipophilic (mixes with other oils). Oils are usually flammable and surface active. Most oils are unsaturated ...
.
Futures contract In finance, a futures contract (sometimes called a futures) is a standardized legal contract to buy or sell something at a predetermined price for delivery at a specified time in the future, between parties not yet known to each other. The asset ...
s are the oldest way of investing in commodities. Commodity markets can include physical trading and derivatives trading using
spot price In finance, a spot contract, spot transaction, or simply spot, is a contract of buying or selling a commodity, security or currency for immediate settlement (payment and delivery) on the spot date, which is normally two business days after the ...
s, forwards,
futures Futures may mean: Finance *Futures contract, a tradable financial derivatives contract *Futures exchange, a financial market where futures contracts are traded * ''Futures'' (magazine), an American finance magazine Music * ''Futures'' (album), a ...
, and
options Option or Options may refer to: Computing *Option key, a key on Apple computer keyboards *Option type, a polymorphic data type in programming languages *Command-line option, an optional parameter to a command *OPTIONS, an HTTP request method ...
on futures. Farmers have used a simple form of derivative trading in the commodity market for centuries for price risk management. A
financial derivative In finance, a derivative is a contract that ''derives'' its value from the performance of an underlying entity. This underlying entity can be an asset, index, or interest rate, and is often simply called the "underlying". Derivatives can be u ...
is a financial instrument whose value is derived from a commodity termed an underlier. Derivatives are either exchange-traded or
over-the-counter Over-the-counter (OTC) drugs are medicines sold directly to a consumer without a requirement for a prescription from a healthcare professional, as opposed to prescription drugs, which may be supplied only to consumers possessing a valid prescr ...
(OTC). An increasing number of derivatives are traded via clearing houses some with
central counterparty clearing A central clearing counterparty (CCP), also referred to as a central counterparty, is a financial institution that takes on counterparty credit risk between parties to a transaction and provides clearing and settlement services for trades in fore ...
, which provide clearing and settlement services on a futures exchange, as well as off-exchange in the OTC market. Derivatives such as futures contracts, Swaps (1970s-), Exchange-traded Commodities (ETC) (2003-), forward contracts have become the primary trading instruments in commodity markets. Futures are traded on regulated
commodities exchange A commodities exchange is an exchange, or market, where various commodities are traded. Most commodity markets around the world trade in agricultural products and other raw materials (like wheat, barley, sugar, maize, cotton, cocoa, coffee, m ...
s. Over-the-counter (OTC) contracts are "privately negotiated bilateral contracts entered into between the contracting parties directly".
Exchange-traded fund An exchange-traded fund (ETF) is a type of investment fund and exchange-traded product, i.e. they are traded on stock exchanges. ETFs are similar in many ways to mutual funds, except that ETFs are bought and sold from other owners throughout th ...
s (ETFs) began to feature commodities in 2003. Gold ETFs are based on "electronic gold" that does not entail the ownership of physical bullion, with its added costs of insurance and storage in repositories such as the
London bullion market The London bullion market is a wholesale over-the-counter market for the trading of gold and silver. Trading is conducted amongst members of the London Bullion Market Association (LBMA), loosely overseen by the Bank of England. Most of the member ...
. According to the
World Gold Council The World Gold Council is the market development organisation for the gold industry. It works across all parts of the industry, from gold mining to investment, with the aim of stimulating and sustaining demand for gold. They frequently publish ...
, ETFs allow investors to be exposed to the gold market without the risk of price volatility associated with gold as a physical commodity. This article covers physical product (food, metals, energy) markets but not the ways that services, including those of governments, nor investment, nor debt, can be seen as a commodity. Articles on
reinsurance market Reinsurance is insurance that an insurance company purchases from another insurance company to insulate itself (at least in part) from the risk of a major claims event. With reinsurance, the company passes on ("cedes") some part of its own insu ...
s,
stock market A stock market, equity market, or share market is the aggregation of buyers and sellers of stocks (also called shares), which represent ownership claims on businesses; these may include ''securities'' listed on a public stock exchange, ...
s,
bond market The bond market (also debt market or credit market) is a financial market where participants can issue new debt, known as the primary market, or buy and sell debt securities, known as the secondary market. This is usually in the form of bonds, bu ...
s, and
currency market The foreign exchange market (Forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency. It includes all aspe ...
s cover those concerns separately and in more depth.


History

Commodity-based money and commodity markets in a crude early form are believed to have originated in
Sumer Sumer () is the earliest known civilization in the historical region of southern Mesopotamia (south-central Iraq), emerging during the Chalcolithic and early Bronze Ages between the sixth and fifth millennium BC. It is one of the cradles of ...
between 4500 BC and 4000 BC. Sumerians first used
clay Clay is a type of fine-grained natural soil material containing clay minerals (hydrous aluminium phyllosilicates, e.g. kaolin, Al2 Si2 O5( OH)4). Clays develop plasticity when wet, due to a molecular film of water surrounding the clay pa ...
tokens sealed in a clay vessel, then clay writing tablets to represent the amount—for example, the number of goats, to be delivered. These promises of time and date of delivery resemble
futures contract In finance, a futures contract (sometimes called a futures) is a standardized legal contract to buy or sell something at a predetermined price for delivery at a specified time in the future, between parties not yet known to each other. The asset ...
. Early civilizations variously used pigs, rare seashells, or other items as
commodity money Commodity money is money whose value comes from a commodity of which it is made. Commodity money consists of objects having value or use in themselves (intrinsic value) as well as their value in buying goods. This is in contrast to representa ...
. Since that time traders have sought ways to simplify and standardize trade contracts.
Gold Gold is a chemical element with the symbol Au (from la, aurum) and atomic number 79. This makes it one of the higher atomic number elements that occur naturally. It is a bright, slightly orange-yellow, dense, soft, malleable, and ductile ...
and
silver Silver is a chemical element with the symbol Ag (from the Latin ', derived from the Proto-Indo-European ''h₂erǵ'': "shiny" or "white") and atomic number 47. A soft, white, lustrous transition metal, it exhibits the highest electrical ...
markets evolved in classical civilizations. At first, the precious metals were valued for their beauty and intrinsic worth and were associated with royalty. In time, they were used for trading and were exchanged for other goods and commodities, or for payments of labor. Gold, measured out, then became money. Gold's scarcity, its unique density and the way it could be easily melted, shaped, and measured made it a natural trading asset. Beginning in the late 10th century, commodity markets grew as a mechanism for allocating goods, labor, land and capital across Europe. Between the late 11th and the late 13th century, English urbanization, regional specialization, expanded and improved infrastructure, the increased use of coinage and the proliferation of markets and fairs were evidence of commercialization. The spread of markets is illustrated by the 1466 installation of reliable scales in the villages of Sloten and Osdorp so villagers no longer had to travel to Haarlem or Amsterdam to weigh their locally produced cheese and butter. The
Amsterdam Stock Exchange Euronext Amsterdam is a stock exchange based in Amsterdam, the Netherlands. Formerly known as the Amsterdam Stock Exchange, it merged on 22 September 2000 with the Brussels Stock Exchange and the Paris Stock Exchange to form Euronext. The r ...
, often cited as the first stock exchange, originated as a market for the exchange of commodities. Early trading on the Amsterdam Stock Exchange often involved the use of very sophisticated contracts, including short sales, forward contracts, and options. "Trading took place at the Amsterdam Bourse, an open aired venue, which was created as a commodity exchange in 1530 and rebuilt in 1608. Commodity exchanges themselves were a relatively recent invention, existing in only a handful of cities." In 1864, in the United States, wheat, corn, cattle, and pigs were widely traded using standard instruments on the
Chicago Board of Trade The Chicago Board of Trade (CBOT), established on April 3, 1848, is one of the world's oldest futures and options exchanges. On July 12, 2007, the CBOT merged with the Chicago Mercantile Exchange (CME) to form CME Group. CBOT and three other exch ...
(CBOT), the world's oldest futures and options exchange. Other food commodities were added to the
Commodity Exchange Act Commodity Exchange Act (ch. 545, , enacted June 15, 1936) is a federal act enacted in 1936 by the U.S. Government, with some of its provisions amending the Grain Futures Act of 1922. The Act provides federal regulation of all commodities and fut ...
and traded through CBOT in the 1930s and 1940s, expanding the list from grains to include rice, mill feeds, butter, eggs, Irish potatoes and soybeans. Successful commodity markets require broad consensus on product variations to make each commodity acceptable for trading, such as the purity of gold in bullion. Classical civilizations built complex global markets trading gold or silver for spices, cloth, wood and weapons, most of which had standards of quality and timeliness. Through the 19th century "the exchanges became effective spokesmen for, and innovators of, improvements in transportation, warehousing, and financing, which paved the way to expanded interstate and international trade." Reputation and clearing became central concerns, and states that could handle them most effectively developed powerful financial centers.


Commodity price index

In 1934, the US
Bureau of Labor Statistics The Bureau of Labor Statistics (BLS) is a unit of the United States Department of Labor. It is the principal fact-finding agency for the U.S. government in the broad field of labor economics and statistics and serves as a principal agency of ...
began the computation of a daily Commodity price index that became available to the public in 1940. By 1952, the Bureau of Labor Statistics issued a
Spot Market Price Index Spot or SPOT may refer to: Places * Spot, North Carolina, a community in the United States * The Spot, New South Wales, a locality in Sydney, Australia * South Pole Traverse, sometimes called the South Pole Overland Traverse People * Spot (pro ...
that measured the price movements of "22 sensitive basic commodities whose markets are presumed to be among the first to be influenced by changes in economic conditions. As such, it serves as one early indication of impending changes in business activity."


Commodity index fund

A commodity index fund is a fund whose assets are invested in financial instruments based on or linked to a commodity index. In just about every case the index is in fact a Commodity Futures Index. The first such index was the Dow Jones Commodity Index, which began in 1933. The first practically investable commodity futures index was the
Goldman Sachs Commodity Index The S&P GSCI (formerly the Goldman Sachs Commodity Index) serves as a benchmark for investment in the commodity markets and as a measure of commodity performance over time. It is a tradable index that is readily available to market participants of ...
, created in 1991,"The Food Bubble", Frederick Kaufman, Harper's, 2010 July and known as the "GSCI". The next was the Dow Jones AIG Commodity Index. It differed from the GSCI primarily in the weights allocated to each commodity. The DJ AIG had mechanisms to periodically limit the weight of any one commodity and to remove commodities whose weights became too small. After
AIG American International Group, Inc. (AIG) is an American multinational finance and insurance corporation with operations in more than 80 countries and jurisdictions. , AIG companies employed 49,600 people.https://www.aig.com/content/dam/aig/amer ...
's financial problems in 2008 the Index rights were sold to
UBS UBS Group AG is a multinational investment bank and financial services company founded and based in Switzerland. Co-headquartered in the cities of Zürich and Basel, it maintains a presence in all major financial centres as the largest Swi ...
and it is now known as the DJUBS index. Other commodity indices include the Reuters / CRB index (which is the old CRB Index as re-structured in 2005) and the Rogers Index.


Cash commodity

Cash commodities or "actuals" refer to the physical goods—e.g., wheat, corn, soybeans, crude oil, gold, silver—that someone is buying/selling/trading as distinguished from derivatives.


Call options

In a
call option In finance, a call option, often simply labeled a "call", is a contract between the buyer and the seller of the call option to exchange a security at a set price. The buyer of the call option has the right, but not the obligation, to buy ...
counterparties enter into a financial contract option where the buyer purchases the right but not the obligation to buy an agreed quantity of a particular commodity or financial instrument (the underlying) from the seller of the option at a certain time (the expiration date) for a certain price (the
strike price In finance, the strike price (or exercise price) of an option is a fixed price at which the owner of the option can buy (in the case of a call), or sell (in the case of a put), the underlying security or commodity. The strike price may be set ...
). The seller (or "writer") is obligated to sell the commodity or financial instrument should the buyer so decide. The buyer pays a fee (called a premium) for this right.


Electronic commodities trading

In traditional stock market exchanges such as the
New York Stock Exchange The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange in the Financial District of Lower Manhattan in New York City. It is by far the world's largest stock exchange by market capitalization of its liste ...
(NYSE), most trading activity took place in the trading pits in face-to-face interactions between brokers and dealers in open outcry trading. In 1992 the
Financial Information eXchange The Financial Information eXchange (FIX) protocol is an electronic communications protocol initiated in 1992 for international real-time exchange of information related to securities transactions and markets. With trillions of dollars traded an ...
(FIX) protocol was introduced, allowing international real-time exchange of information regarding market transactions. The U.S. Securities and Exchange Commission ordered U.S. stock markets to convert from the fractional system to a decimal system by April 2001. Metrification, conversion from the imperial system of measurement to the metrical, increased throughout the 20th century. Eventually FIX-compliant interfaces were adopted globally by commodity exchanges using the FIX Protocol. In 2001 the
Chicago Board of Trade The Chicago Board of Trade (CBOT), established on April 3, 1848, is one of the world's oldest futures and options exchanges. On July 12, 2007, the CBOT merged with the Chicago Mercantile Exchange (CME) to form CME Group. CBOT and three other exch ...
and the
Chicago Mercantile Exchange The Chicago Mercantile Exchange (CME) (often called "the Chicago Merc", or "the Merc") is a global derivatives marketplace based in Chicago and located at 20 S. Wacker Drive. The CME was founded in 1898 as the Chicago Butter and Egg Board, an ...
(later merged into the CME group, the world's largest futures exchange company) launched their FIX-compliant interface. By 2011, the
alternative trading system Alternative trading system (ATS) is a US and Canadian regulatory term for a non-exchange trading venue that matches buyers and sellers to find counterparties for transactions. Alternative trading systems are typically regulated as broker-dealers ...
(ATS) of
electronic trading In finance, an electronic trading platform also known as an online trading platform, is a computer software program that can be used to place orders for financial products over a network with a financial intermediary. Various financial products c ...
featured computers buying and selling without human dealer intermediation.
High-frequency trading High-frequency trading (HFT) is a type of algorithmic financial trading characterized by high speeds, high turnover rates, and high order-to-trade ratios that leverages high-frequency financial data and electronic trading tools. While there is no ...
(HFT) algorithmic trading, had almost phased out "dinosaur floor-traders".In July 2009, when a high-frequency trading platform with proprietary
algorithmic trading code Algorithmic may refer to: *Algorithm, step-by-step instructions for a calculation ** Algorithmic art, art made by an algorithm **Algorithmic composition, music made by an algorithm **Algorithmic trading, trading decisions made by an algorithm **Alg ...
used by
Goldman Sachs Goldman Sachs () is an American multinational investment bank and financial services company. Founded in 1869, Goldman Sachs is headquartered at 200 West Street in Lower Manhattan, with regional headquarters in London, Warsaw, Bangalore, Ho ...
to allegedly generate massive profits in the commodity market was stolen by
Sergey Aleynikov Sergey Aleynikov (born 1970) is a former Goldman Sachs computer programmer. Between 2009 and 2016, he was prosecuted by NY Federal and State jurisdictions for the same conduct of allegedly copying proprietary computer source code from his employe ...
there was widespread concern about the unintended economic consequences of HFT.


Complexity and interconnectedness of global market

The robust growth of emerging market economies (EMEs, such as Brazil, Russia, India, and China), beginning in the 1990s, "propelled commodity markets into a supercycle". The size and diversity of commodity markets expanded internationally, and
pension fund A pension fund, also known as a superannuation fund in some countries, is any plan, fund, or scheme which provides retirement income. Pension funds typically have large amounts of money to invest and are the major investors in listed and priva ...
s and
sovereign wealth fund A sovereign wealth fund (SWF), sovereign investment fund, or social wealth fund is a state-owned investment fund that invests in real and financial assets such as stocks, bonds, real estate, precious metals, or in alternative investments such as ...
s started allocating more capital to commodities, in order to diversify into an asset class with less exposure to currency depreciation. In 2012, as emerging-market economies slowed down, commodity prices peaked and started to decline. From 2005 through 2013, energy and metals' real prices remained well above their long-term averages. In 2012, real
food prices Food prices refer to the average price level for food across countries, regions and on a global scale. Food prices have an impact on producers and consumers of food. Price levels depend on the food production process, including food marketing ...
were their highest since 1982. The price of gold bullion fell dramatically on 12 April 2013 and analysts frantically sought explanations. Rumors spread that the
European Central Bank The European Central Bank (ECB) is the prime component of the monetary Eurosystem and the European System of Central Banks (ESCB) as well as one of seven institutions of the European Union. It is one of the world's most important centra ...
(ECB) would force
Cyprus Cyprus ; tr, Kıbrıs (), officially the Republic of Cyprus,, , lit: Republic of Cyprus is an island country located south of the Anatolian Peninsula in the eastern Mediterranean Sea. Its continental position is disputed; while it is ...
to sell its gold reserves in response to its
financial crisis A financial crisis is any of a broad variety of situations in which some financial assets suddenly lose a large part of their nominal value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and man ...
. Major banks such as
Goldman Sachs Goldman Sachs () is an American multinational investment bank and financial services company. Founded in 1869, Goldman Sachs is headquartered at 200 West Street in Lower Manhattan, with regional headquarters in London, Warsaw, Bangalore, Ho ...
began immediately to short gold bullion. Investors scrambled to liquidate their
exchange-traded fund An exchange-traded fund (ETF) is a type of investment fund and exchange-traded product, i.e. they are traded on stock exchanges. ETFs are similar in many ways to mutual funds, except that ETFs are bought and sold from other owners throughout th ...
s (ETFs)Exchange Traded Funds revolutionized the mutual funds industry when they were introduced. Exchange Traded Commodities, sold first by pioneering investors group Barclays Global Investors (BGI) (now owned by BlackRock) revolutionized the commodity market. By the end of December 2009 Barclays Global Investors (BGI) assets hit an all-time high of $1 trillion ($1,032 billion). and margin call selling accelerated. George Gero, precious metals commodities expert at the
Royal Bank of Canada Royal Bank of Canada (RBC; french: Banque royale du Canada) is a Canadian multinational financial services company and the largest bank in Canada by market capitalization. The bank serves over 17 million clients and has more than 89,000 ...
(RBC) Wealth Management section reported that he had not seen selling of gold bullion as panicked as this in his forty years in commodity markets. The earliest commodity exchange-traded fund (ETFs), such as
SPDR Gold Shares SPDR Gold Shares (also known as SPDR Gold Trust) is part of the SPDR family of exchange-traded funds (ETFs) managed and marketed by State Street Global Advisors. For a few years, the fund was the second-largest exchange-traded fund in the world, an ...
and
iShares iShares is a collection of exchange-traded funds (ETFs) managed by BlackRock, which acquired the brand and business from Barclays in 2009. The first iShares ETFs were known as World Equity Benchmark Shares (WEBS) but have since been rebranded. ...
Silver Trust , actually owned the physical commodities. Similar to these are (
palladium Palladium is a chemical element with the symbol Pd and atomic number 46. It is a rare and lustrous silvery-white metal discovered in 1803 by the English chemist William Hyde Wollaston. He named it after the asteroid Pallas, which was itself ...
) and (
platinum Platinum is a chemical element with the symbol Pt and atomic number 78. It is a dense, malleable, ductile, highly unreactive, precious, silverish-white transition metal. Its name originates from Spanish , a diminutive of "silver". Pla ...
). However, most Exchange Traded Commodities (ETCs) implement a
futures trading In finance, a futures contract (sometimes called a futures) is a standardized legal contract to buy or sell something at a predetermined price for delivery at a specified time in the future, between parties not yet known to each other. The asset ...
strategy. At the time Russian Prime Minister
Dmitry Medvedev Dmitry Anatolyevich Medvedev ( rus, links=no, Дмитрий Анатольевич Медведев, p=ˈdmʲitrʲɪj ɐnɐˈtolʲjɪvʲɪtɕ mʲɪdˈvʲedʲɪf; born 14 September 1965) is a Russian politician who has been serving as the dep ...
warned that Russia could sink into recession. He argued that "We live in a dynamic, fast-developing world. It is so global and so complex that we sometimes cannot keep up with the changes". Analysts have claimed that Russia's economy is overly dependent on commodities.


Contracts in the commodity market

A
Spot contract In finance, a spot contract, spot transaction, or simply spot, is a contract of buying or selling a commodity, security or currency for immediate settlement (payment and delivery) on the spot date, which is normally two business days after t ...
is an agreement where delivery and payment either takes place immediately, or with a short lag. Physical trading normally involves a visual inspection and is carried out in physical markets such as a
farmers market A farmers' market (or farmers market according to the AP stylebook, also farmer's market in the Cambridge Dictionary) is a physical retail marketplace intended to sell foods directly by farmers to consumers. Farmers' markets may be indoors or ...
.
Derivatives market The derivatives market is the financial market for derivatives, financial instruments like futures contracts or options, which are derived from other forms of assets. The market can be divided into two, that for exchange-traded derivatives a ...
s, on the other hand, require the existence of agreed standards so that trades can be made without visual inspection.


Standardization

US
soybean The soybean, soy bean, or soya bean (''Glycine max'') is a species of legume native to East Asia, widely grown for its edible bean, which has numerous uses. Traditional unfermented food uses of soybeans include soy milk, from which tofu ...
futures do not qualify as "standard grade" if they are "GMO or a mixture of GMO and Non-GMO No. 2 yellow soybeans of Indiana, Ohio and Michigan origin produced in the U.S.A. (Non-screened, stored in silo)". They are of "deliverable grade" if they are "GMO or a mixture of GMO and Non-GMO No. 2 yellow soybeans of Iowa, Illinois and Wisconsin origin produced in the U.S.A. (Non-screened, stored in silo)". Note the distinction between states, and the need to clearly mention their status as GMO (
genetically modified organism A genetically modified organism (GMO) is any organism whose genetic material has been altered using genetic engineering techniques. The exact definition of a genetically modified organism and what constitutes genetic engineering varies, wit ...
) which makes them unacceptable to most
organic Organic may refer to: * Organic, of or relating to an organism, a living entity * Organic, of or relating to an anatomical organ Chemistry * Organic matter, matter that has come from a once-living organism, is capable of decay or is the product ...
food buyers. Similar specifications apply for cotton, orange juice, cocoa, sugar, wheat, corn, barley, pork bellies, milk, feed stuffs, fruits, vegetables, other grains, other beans, hay, other livestock, meats, poultry, eggs, or any other commodity which is so traded. Standardization has also occurred technologically, as the use of the FIX Protocol by commodities exchanges has allowed trade messages to be sent, received and processed in the same format as stocks or equities. This process began in 2001 when the Chicago Mercantile Exchange launched a FIX-compliant interface that was adopted by commodity exchanges around the world.


Derivatives

Derivatives evolved from simple commodity future contracts into a diverse group of financial instruments that apply to every kind of asset, including mortgages, insurance and many more. Futures contracts, Swaps (1970s-), Exchange-traded Commodities (ETC) (2003-), forward contracts, etc. are examples. They can be traded through formal exchanges or through Over-the-counter (OTC). Commodity market derivatives unlike credit default derivatives, for example, are secured by the physical assets or commodities.


Forward contracts

A
forward contract In finance, a forward contract or simply a forward is a non-standardized contract between two parties to buy or sell an asset at a specified future time at a price agreed on at the time of conclusion of the contract, making it a type of derivat ...
is an agreement between two parties to exchange at a fixed future date a given quantity of a commodity for a specific price defined when the contract is finalized. The fixed price is also called
forward price The forward price (or sometimes forward rate) is the agreed upon price of an asset in a forward contract. Using the rational pricing assumption, for a forward contract on an underlying asset that is tradeable, the forward price can be expressed in t ...
. Such forward contracts began as a way of reducing pricing risk in food and agricultural product markets. By agreeing in advance on a price for a future delivery, farmers were able protect their output against a possible fall of market prices and in contrast buyers were able to protect themselves against a possible rise of market prices. Forward contracts, for example, were used for rice in seventeenth century Japan.


Futures contract

Futures Futures may mean: Finance *Futures contract, a tradable financial derivatives contract *Futures exchange, a financial market where futures contracts are traded * ''Futures'' (magazine), an American finance magazine Music * ''Futures'' (album), a ...
contracts are standardized forward contracts that are transacted through an exchange. In futures contracts the buyer and the seller stipulate product, grade, quantity and location and leaving price as the only variable. Agricultural futures contracts are the oldest, in use in the United States for more than 170 years. Modern futures agreements, began in Chicago in the 1840s, with the appearance of
grain elevators A grain elevator is a facility designed to stockpile or store grain. In the grain trade, the term "grain elevator" also describes a tower containing a bucket elevator or a pneumatic conveyor, which scoops up grain from a lower level and deposits ...
. Chicago, centrally located, emerged as the hub between Midwestern farmers and east coast consumer population centers.


Swaps

A swap is a derivative in which counterparties exchange the cash flows of one party's financial instrument for those of the other party's financial instrument. They were introduced in the 1970s.


Exchange-traded commodities (ETCs)

Exchange-traded commodity is a term used for commodity
exchange-traded fund An exchange-traded fund (ETF) is a type of investment fund and exchange-traded product, i.e. they are traded on stock exchanges. ETFs are similar in many ways to mutual funds, except that ETFs are bought and sold from other owners throughout th ...
s (which are funds) or commodity
exchange-traded note An exchange-traded product (ETP) is a regularly priced security which trades during the day on a national stock exchange. ETPs may embed derivatives but it is not a requirement that they do so - and the investment memorandum (or offering documents ...
s (which are notes). These track the performance of an underlying commodity index including total return indices based on a single commodity. They are similar to ETFs and traded and settled exactly like stock funds. ETCs have
market maker A market maker or liquidity provider is a company or an individual that quotes both a buy and a sell price in a tradable asset held in inventory, hoping to make a profit on the '' bid–ask spread'', or ''turn.'' The benefit to the firm is that ...
support with guaranteed liquidity, enabling investors to easily invest in commodities. They were introduced in 2003. At first, only professional institutional investors had access, but online exchanges opened some ETC markets to almost anyone. ETCs were introduced partly in response to the tight supply of commodities in 2000, combined with record low inventories and increasing demand from emerging markets such as China and India. Prior to the introduction of ETCs, by the 1990s ETFs pioneered by
Barclays Global Investors BlackRock, Inc. is an American multi-national investment company based in New York City. Founded in 1988, initially as a risk management and fixed income institutional asset manager, BlackRock is the world's largest asset manager, with trill ...
(BGI) revolutionized the mutual funds industry. By the end of December 2009 BGI assets hit an all-time high of $1 trillion. Gold was the first commodity to be securitised through an Exchange Traded Fund (ETF) in the early 1990s, but it was not available for trade until 2003. The idea of a Gold ETF was first officially conceptualised by
Benchmark Asset Management Company Private Ltd Goldman Sachs () is an American multinational investment bank and financial services company. Founded in 1869, Goldman Sachs is headquartered at 200 West Street in Lower Manhattan, with regional headquarters in London, Warsaw, Bangalore, Hong ...
in India, when they filed a proposal with the
Securities and Exchange Board of India The Securities and Exchange Board of India (SEBI) is the Regulatory agency, regulatory body for securities and commodity market in India under the ownership of Ministry of Finance (India), Ministry of Finance within the Government of India. It w ...
in May 2002. The first gold exchange-traded fund was
Gold Bullion Securities ETF Securities is an asset management firm that issues exchange-traded funds (ETFs) primarily in Australia. History The company was founded by Australian businessman and philanthropist Graham Tuckwell. The company worked with the World Gold ...
launched on the ASX in 2003, and the first silver exchange-traded fund was iShares Silver Trust launched on the NYSE in 2006. As of November 2010 a commodity ETF, namely
SPDR Gold Shares SPDR Gold Shares (also known as SPDR Gold Trust) is part of the SPDR family of exchange-traded funds (ETFs) managed and marketed by State Street Global Advisors. For a few years, the fund was the second-largest exchange-traded fund in the world, an ...
, was the second-largest ETF by market capitalization. Generally, commodity ETFs are index funds tracking non-security indices. Because they do not invest in securities, commodity ETFs are not regulated as investment companies under the
Investment Company Act of 1940 The Investment Company Act of 1940 (commonly referred to as the '40 Act) is an act of Congress which regulates investment funds. It was passed as a United States Public Law () on August 22, 1940, and is codified at . Along with the Securities Ex ...
in the United States, although their public offering is subject to SEC review and they need an SEC
no-action letter A no-action letter is a letter written by the staff members of a government agency, requested by an entity subject to regulation by that agency, indicating that the staff will not recommend that the agency take legal action against the entity, sh ...
under the
Securities Exchange Act of 1934 The Securities Exchange Act of 1934 (also called the Exchange Act, '34 Act, or 1934 Act) (, codified at et seq.) is a law governing the secondary trading of securities ( stocks, bonds, and debentures) in the United States of America. A land ...
. They may, however, be subject to regulation by the
Commodity Futures Trading Commission The Commodity Futures Trading Commission (CFTC) is an independent agency of the US government created in 1974 that regulates the U.S. derivatives markets, which includes futures, swaps, and certain kinds of options. The Commodity Exchange Act ...
. The earliest commodity ETFs, such as
SPDR Gold Shares SPDR Gold Shares (also known as SPDR Gold Trust) is part of the SPDR family of exchange-traded funds (ETFs) managed and marketed by State Street Global Advisors. For a few years, the fund was the second-largest exchange-traded fund in the world, an ...
and
iShares iShares is a collection of exchange-traded funds (ETFs) managed by BlackRock, which acquired the brand and business from Barclays in 2009. The first iShares ETFs were known as World Equity Benchmark Shares (WEBS) but have since been rebranded. ...
Silver Trust , actually owned the physical commodity (e.g., gold and silver bars). Similar to these are (palladium) and (platinum). However, most ETCs implement a
futures trading In finance, a futures contract (sometimes called a futures) is a standardized legal contract to buy or sell something at a predetermined price for delivery at a specified time in the future, between parties not yet known to each other. The asset ...
strategy, which may produce quite different results from owning the commodity. Commodity ETFs trade provide exposure to an increasing range of commodities and commodity indices, including energy, metals, softs and agriculture. Many commodity funds, such as oil roll so-called front-month futures contracts from month to month. This provides exposure to the commodity, but subjects the investor to risks involved in different prices along the ''term structure'', such as a high cost to roll. ETCs in China and India gained in importance due to those countries' emergence as commodities consumers and producers. China accounted for more than 60% of exchange-traded commodities in 2009, up from 40% the previous year. The global volume of ETCs increased by a 20% in 2010, and 50% since 2008, to around 2.5 billion million contracts.


Over-the-counter (OTC) commodities derivatives

Over-the-counter Over-the-counter (OTC) drugs are medicines sold directly to a consumer without a requirement for a prescription from a healthcare professional, as opposed to prescription drugs, which may be supplied only to consumers possessing a valid prescr ...
(OTC) commodities derivatives trading originally involved two parties, without an exchange. Exchange trading offers greater transparency and regulatory protections. In an OTC trade, the price is not generally made public. OTC commodities derivatives are higher risk but may also lead to higher profits. Between 2007 and 2010, global physical exports of commodities fell by 2%, while the outstanding value of OTC commodities derivatives declined by two-thirds as investors reduced risk following a five-fold increase in the previous three years. Money under management more than doubled between 2008 and 2010 to nearly $380 billion. Inflows into the sector totaled over $60 billion in 2010, the second-highest year on record, down from $72 billion the previous year. The bulk of funds went into precious metals and energy products. The growth in prices of many commodities in 2010 contributed to the increase in the value of commodities funds under management.


Commodities exchange

A commodities exchange is an exchange where various commodities and derivatives are traded. Most commodity markets across the world trade in agricultural products and other raw materials (like wheat, barley, sugar, maize, cotton, cocoa, coffee, milk products, pork bellies, oil, metals, etc.) and contracts based on them. These contracts can include spot prices, forwards, futures and options on futures. Other sophisticated products may include interest rates, environmental instruments, swaps, or freight contracts.


Traded commodity classes

Source:
International Trade Centre The International Trade Centre (ITC) () is a multilateral agency which has a joint mandate with the World Trade Organization (WTO) and the United Nations (UN) through the United Nations Conference on Trade and Development (UNCTAD). The he ...


Energy

Energy commodities include
crude oil Petroleum, also known as crude oil, or simply oil, is a naturally occurring yellowish-black liquid mixture of mainly hydrocarbons, and is found in geological formations. The name ''petroleum'' covers both naturally occurring unprocessed crude ...
particularly
West Texas Intermediate West Texas Intermediate (WTI) is a grade or mix of crude oil; the term is also used to refer to the spot price, the futures price, or assessed price for that oil. In colloquial usage, WTI usually refers to the WTI Crude Oil futures contract tr ...
(WTI) crude oil and Brent crude oil,
natural gas Natural gas (also called fossil gas or simply gas) is a naturally occurring mixture of gaseous hydrocarbons consisting primarily of methane in addition to various smaller amounts of other higher alkanes. Low levels of trace gases like carbon d ...
,
heating oil Heating oil is any petroleum product or other oil used for heating; a fuel oil. Most commonly, it refers to low viscosity grades of fuel oil used for furnaces or boilers use for home heating and in other buildings. Home heating oil is often ...
,
ethanol Ethanol (abbr. EtOH; also called ethyl alcohol, grain alcohol, drinking alcohol, or simply alcohol) is an organic compound. It is an alcohol with the chemical formula . Its formula can be also written as or (an ethyl group linked to a ...
and
purified terephthalic acid Terephthalic acid is an organic compound with formula C6H4(CO2H)2. This white solid is a commodity chemical, used principally as a precursor to the polyester PET, used to make clothing and plastic bottles. Several million tonnes are produced an ...
. Hedging is a common practice for these commodities.


Crude oil and natural gas

For many years,
West Texas Intermediate West Texas Intermediate (WTI) is a grade or mix of crude oil; the term is also used to refer to the spot price, the futures price, or assessed price for that oil. In colloquial usage, WTI usually refers to the WTI Crude Oil futures contract tr ...
(WTI) crude oil, a light, sweet crude oil, was the world's most-traded commodity. WTI is a grade used as a benchmark in oil pricing. It is the underlying
commodity In economics, a commodity is an economic good, usually a resource, that has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them. The price of a co ...
of Chicago Mercantile Exchange's oil futures contracts. WTI is often referenced in news reports on oil prices, alongside
Brent Crude Brent Crude may refer to any or all of the components of the Brent Complex, a physically and financially traded oil market based around the North Sea of Northwest Europe; colloquially, Brent Crude usually refers to the price of the ICE (Intercon ...
. WTI is lighter and sweeter than Brent and considerably lighter and sweeter than Dubai or Oman. From April through October 2012, Brent futures contracts exceeded those for WTI, the longest streak since at least 1995. Crude oil can be light or
heavy Heavy may refer to: Measures * Heavy (aeronautics), a term used by pilots and air traffic controllers to refer to aircraft capable of 300,000 lbs or more takeoff weight * Heavy, a characterization of objects with substantial weight * Heavy, ...
. Oil was the first form of energy to be widely traded. Some commodity market speculation is directly related to the stability of certain states, e.g.,
Iraq Iraq,; ku, عێراق, translit=Êraq officially the Republic of Iraq, '; ku, کۆماری عێراق, translit=Komarî Êraq is a country in Western Asia. It is bordered by Turkey to Iraq–Turkey border, the north, Iran to Iran–Iraq ...
,
Bahrain Bahrain ( ; ; ar, البحرين, al-Bahrayn, locally ), officially the Kingdom of Bahrain, ' is an island country in Western Asia. It is situated on the Persian Gulf, and comprises a small archipelago made up of 50 natural islands and a ...
,
Iran Iran, officially the Islamic Republic of Iran, and also called Persia, is a country located in Western Asia. It is bordered by Iraq and Turkey to the west, by Azerbaijan and Armenia to the northwest, by the Caspian Sea and Turkmeni ...
,
Venezuela Venezuela (; ), officially the Bolivarian Republic of Venezuela ( es, link=no, República Bolivariana de Venezuela), is a country on the northern coast of South America, consisting of a continental landmass and many islands and islets in th ...
and many others. Most commodities markets are not so tied to the politics of volatile regions. Oil and gasoline are traded in units of 1,000 barrels (42,000 US gallons). WTI crude oil is traded through
NYMEX The New York Mercantile Exchange (NYMEX) is a commodity futures exchange owned and operated by CME Group of Chicago. NYMEX is located at One North End Avenue in Brookfield Place in the Battery Park City section of Manhattan, New York City. ...
under trading symbol CL and through
Intercontinental Exchange Intercontinental Exchange, Inc. (ICE) is an American company formed in 2000 that operates global financial exchanges and clearing houses and provides mortgage technology, data and listing services. Listed on the Fortune 500, S&P 500, and Russ ...
(ICE) under trading symbol WBS. Brent crude oil is traded in through Intercontinental Exchange under trading symbol BRN and on the CME under trading symbol BZ.
Gulf Coast Gasoline A gulf is a large inlet from the ocean into the landmass, typically with a narrower opening than a bay, but that is not observable in all geographic areas so named. The term gulf was traditionally used for large highly-indented navigable bodies ...
is traded through NYMEX with the trading symbol of LR.
Gasoline Gasoline (; ) or petrol (; ) (see ) is a transparent, petroleum-derived flammable liquid that is used primarily as a fuel in most spark-ignited internal combustion engines (also known as petrol engines). It consists mostly of organic c ...
(reformulated gasoline blendstock for oxygen blending or RBOB) is traded through NYMEX via trading symbol RB.
Propane Propane () is a three-carbon alkane with the molecular formula . It is a gas at standard temperature and pressure, but compressible to a transportable liquid. A by-product of natural gas processing and petroleum refining, it is commonly used as ...
is traded through NYMEX, a subsidiary of Intercontinental Exchange since early 2013, via trading symbol PN. Natural gas is traded through NYMEX in units of 10,000 million BTU with the trading symbol of NG.
Heating oil Heating oil is any petroleum product or other oil used for heating; a fuel oil. Most commonly, it refers to low viscosity grades of fuel oil used for furnaces or boilers use for home heating and in other buildings. Home heating oil is often ...
is traded through NYMEX under trading symbol HO.


Others

Purified terephthalic acid Terephthalic acid is an organic compound with formula C6H4(CO2H)2. This white solid is a commodity chemical, used principally as a precursor to the polyester PET, used to make clothing and plastic bottles. Several million tonnes are produced an ...
(PTA) is traded through ZCE in units of 5 tons with the trading symbol of TA.
Ethanol Ethanol (abbr. EtOH; also called ethyl alcohol, grain alcohol, drinking alcohol, or simply alcohol) is an organic compound. It is an alcohol with the chemical formula . Its formula can be also written as or (an ethyl group linked to a ...
is traded at CBOT in units of 29,000 U.S. gal under trading symbols AC (Open Auction) and ZE (Electronic).


Metals


Precious metals

Precious metal Precious metals are rare, naturally occurring metallic chemical elements of high economic value. Chemically, the precious metals tend to be less reactive than most elements (see noble metal). They are usually ductile and have a high lu ...
s currently traded on the commodity market include
gold Gold is a chemical element with the symbol Au (from la, aurum) and atomic number 79. This makes it one of the higher atomic number elements that occur naturally. It is a bright, slightly orange-yellow, dense, soft, malleable, and ductile ...
,
platinum Platinum is a chemical element with the symbol Pt and atomic number 78. It is a dense, malleable, ductile, highly unreactive, precious, silverish-white transition metal. Its name originates from Spanish , a diminutive of "silver". Pla ...
,
palladium Palladium is a chemical element with the symbol Pd and atomic number 46. It is a rare and lustrous silvery-white metal discovered in 1803 by the English chemist William Hyde Wollaston. He named it after the asteroid Pallas, which was itself ...
and
silver Silver is a chemical element with the symbol Ag (from the Latin ', derived from the Proto-Indo-European ''h₂erǵ'': "shiny" or "white") and atomic number 47. A soft, white, lustrous transition metal, it exhibits the highest electrical ...
which are sold by the
troy ounce Troy weight is a system of units of mass that originated in 15th-century England, and is primarily used in the precious metals industry. The troy weight units are the grain, the pennyweight (24 grains), the troy ounce (20 pennyweights), and th ...
. One of the main exchanges for these precious metals is COMEX. According to the
World Gold Council The World Gold Council is the market development organisation for the gold industry. It works across all parts of the industry, from gold mining to investment, with the aim of stimulating and sustaining demand for gold. They frequently publish ...
, investments in gold are the primary driver of industry growth. Gold prices are highly volatile, driven by large flows of speculative money.


Industrial metals

Industrial metals are sold by the
metric ton The tonne ( or ; symbol: t) is a unit of mass equal to 1000  kilograms. It is a non-SI unit accepted for use with SI. It is also referred to as a metric ton to distinguish it from the non-metric units of the short ton (United States ...
through the
London Metal Exchange The London Metal Exchange (LME) is a futures and forwards exchange with the world's largest market in standarised forward contracts, futures contracts and options on base metals. The exchange also offers contracts on ferrous metals and precious ...
and
New York Mercantile Exchange The New York Mercantile Exchange (NYMEX) is a commodity futures exchange owned and operated by CME Group of Chicago. NYMEX is located at One North End Avenue in Brookfield Place in the Battery Park City section of Manhattan, New York City. T ...
. The London Metal Exchange trades include
copper Copper is a chemical element with the symbol Cu (from la, cuprum) and atomic number 29. It is a soft, malleable, and ductile metal with very high thermal and electrical conductivity. A freshly exposed surface of pure copper has a pink ...
,
aluminium Aluminium (aluminum in American and Canadian English) is a chemical element with the symbol Al and atomic number 13. Aluminium has a density lower than those of other common metals, at approximately one third that of steel. It ha ...
,
lead Lead is a chemical element with the symbol Pb (from the Latin ) and atomic number 82. It is a heavy metal that is denser than most common materials. Lead is soft and malleable, and also has a relatively low melting point. When freshly cut, ...
, tin,
aluminium alloy An aluminium alloy (or aluminum alloy; see spelling differences) is an alloy in which aluminium (Al) is the predominant metal. The typical alloying elements are copper, magnesium, manganese, silicon, tin, nickel and zinc. There are two pr ...
,
nickel Nickel is a chemical element with symbol Ni and atomic number 28. It is a silvery-white lustrous metal with a slight golden tinge. Nickel is a hard and ductile transition metal. Pure nickel is chemically reactive but large pieces are slow t ...
,
cobalt Cobalt is a chemical element with the symbol Co and atomic number 27. As with nickel, cobalt is found in the Earth's crust only in a chemically combined form, save for small deposits found in alloys of natural meteoric iron. The free element, p ...
and
molybdenum Molybdenum is a chemical element with the symbol Mo and atomic number 42 which is located in period 5 and group 6. The name is from Neo-Latin ''molybdaenum'', which is based on Ancient Greek ', meaning lead, since its ores were confused with lead ...
. In 2007,
steel Steel is an alloy made up of iron with added carbon to improve its strength and fracture resistance compared to other forms of iron. Many other elements may be present or added. Stainless steels that are corrosion- and oxidation-resistan ...
began trading on the London Metal Exchange. Iron ore has been the latest addition to industrial metal derivatives. Deutsche Bank first began offering iron ore swaps in 2008, other banks quickly followed. Since then the size of the market has more than doubled each year between 2008 and 2012.


Agriculture

Agricultural commodities include grains, food and fiber as well as livestock and meat, various regulatory bodies define agricultural products. In 1900, corn acreage was double that of wheat in the United States. But from the 1930s through the 1970s soybean acreage surpassed corn. Early in the 1970s grain and soybean prices, which had been relatively stable, "soared to levels that were unimaginable at the time". There were a number of factors affecting prices including the "surge in crude oil prices caused by the Arab Oil Embargo in October 1973 (US inflation reached 11% in 1975)". On 21 July 2010,
United States Congress The United States Congress is the legislature of the federal government of the United States. It is Bicameralism, bicameral, composed of a lower body, the United States House of Representatives, House of Representatives, and an upper body, ...
passed the
Dodd–Frank Wall Street Reform and Consumer Protection Act The Dodd–Frank Wall Street Reform and Consumer Protection Act, commonly referred to as Dodd–Frank, is a United States federal law that was enacted on July 21, 2010. The law overhauled financial regulation in the aftermath of the Great Rece ...
with changes to the definition of agricultural commodity. The operational definition used by Dodd-Frank includes " l other commodities that are, or once were, or are derived from, living organisms, including plant, animal and aquatic life, which are generally fungible, within their respective classes, and are used primarily for human food, shelter, animal feed, or natural fiber". Three other categories were explained and listed. In February 2013,
Cornell Law School Cornell Law School is the law school of Cornell University, a private Ivy League university in Ithaca, New York. One of the five Ivy League law schools, it offers four law degree programs, JD, LLM, MSLS and JSD, along with several dual-deg ...
included lumber, soybeans, oilseeds, livestock (live cattle and hogs), dairy products. Agricultural commodities can include lumber (timber and forests), grains excluding stored grain (wheat, oats, barley, rye, grain sorghum, cotton, flax, forage, tame hay, native grass), vegetables (potatoes, tomatoes, sweet corn, dry beans, dry peas, freezing and canning peas), fruit (citrus such as oranges, apples, grapes) corn, tobacco, rice, peanuts, sugar beets, sugar cane, sunflowers, raisins, nursery crops, nuts, soybean complex, aquacultural fish farm species such as finfish, mollusk, crustacean, aquatic invertebrate, amphibian, reptile, or plant life cultivated in aquatic plant farms.


Diamonds

As of 2012, diamond was not traded as a commodity. Institutional investors were repelled by campaign against "
blood diamonds ''Blood Diamond'' is a 2006 American political war action thriller film directed and co-produced by Edward Zwick and starring Leonardo DiCaprio, Jennifer Connelly, and Djimon Hounsou. The title refers to blood diamonds, which are diamonds ...
", the monopoly structure of the diamond market and the lack of uniform standards for diamond pricing. In 2012 the SEC reviewed a proposal to create the "first diamond-backed exchange-traded fund" that would trade on-line in units of one-carat diamonds with a storage vault and delivery point in Antwerp, home of the Antwerp Diamond Bourse. The exchange fund was backed by a company based in
New York City New York, often called New York City or NYC, is the List of United States cities by population, most populous city in the United States. With a 2020 population of 8,804,190 distributed over , New York City is also the L ...
called IndexIQ. IndexIQ had already introduced 14 exchange-traded funds since 2008.IndexIQ registered Adam S. Patti as Chief Executive Officer (CEO) and David Fogel as Chief Financial Officer and Executive Vice President in the City of Rye Brook, New York, on 31 January 2013 as representatives of IndexIQ Advisors LLC sponsoring the IQ Physical Diamond Trust. According to
Citigroup Citigroup Inc. or Citi ( stylized as citi) is an American multinational investment bank and financial services corporation headquartered in New York City. The company was formed by the merger of banking giant Citicorp and financial conglomera ...
analysts, the annual production of polished diamonds is about $18 billion. Like gold, diamonds are easily authenticated and durable. Diamond prices have been more stable than the metals, as the global diamond monopoly
De Beers De Beers Group is an international corporation that specializes in diamond mining, diamond exploitation, diamond retail, diamond trading and industrial diamond manufacturing sectors. The company is active in open-pit, large-scale alluvial and ...
once held almost 90% (by 2013 reduced to 40%) of the new diamond market.


Other commodity markets

Rubber trades on the
Singapore Commodity Exchange The Singapore Exchange Limited (SGX) is a Singaporean investment holding company that provides different services related to securities and derivatives trading and others. SGX is also a member of the World Federation of Exchanges and the Asian ...
in units of 1 kg priced in US cents.
Palm oil Palm oil is an edible vegetable oil derived from the mesocarp (reddish pulp) of the fruit of the oil palms. The oil is used in food manufacturing, in beauty products, and as biofuel. Palm oil accounted for about 33% of global oils produced fr ...
is traded on the
Malaysian Ringgit The Malaysian ringgit (; plural: ringgit; symbol: RM; currency code: MYR; Malay name: ''Ringgit Malaysia''; formerly the Malaysian dollar) is the currency of Malaysia. It is divided into 100 ''sen'' (formerly ''cents''). The ringgit is issu ...
(RM),
Bursa Malaysia Bursa Malaysia is the stock exchange of Malaysia. It is one of the largest bourses in ASEAN. It is based in Kuala Lumpur and was previously known as the Kuala Lumpur Stock Exchange (KLSE). It provides a full integration of transactions, offe ...
in units of 1 kg priced in US cents. Wool is traded on the AUD in units of 1 kg. Polypropylene and Linear Low Density Polyethylene (LL) did trade on the London Metal Exchange in units of 1,000 kg priced in USD but was dropped in 2011.


Regulatory bodies and policies


United States

In the United States, the principal regulator of commodity and futures markets is the
Commodity Futures Trading Commission The Commodity Futures Trading Commission (CFTC) is an independent agency of the US government created in 1974 that regulates the U.S. derivatives markets, which includes futures, swaps, and certain kinds of options. The Commodity Exchange Act ...
(CFTC). The
National Futures Association The National Futures Association (NFA) is the self-regulatory organization (SRO) for the U.S. derivatives industry, including on-exchange traded futures, retail off-exchange foreign currency (forex) and OTC derivatives ( swaps). NFA is headqua ...
(NFA) was formed in 1976 and is the futures industry's self-regulatory organization. The NFA's first regulatory operations began in 1982 and fall under the
Commodity Exchange Act Commodity Exchange Act (ch. 545, , enacted June 15, 1936) is a federal act enacted in 1936 by the U.S. Government, with some of its provisions amending the Grain Futures Act of 1922. The Act provides federal regulation of all commodities and fut ...
of the Commodity Futures Trading Commission Act. Dodd–Frank was enacted in response to the 2008 financial crisis. It called for "strong measures to limit speculation in agricultural commodities" calling upon the CFTC to further limit positions and to regulate over-the-counter trades.


European Union

Markets in Financial Instruments Directive Markets in Financial Instruments Directive 20142014/65/EU commonly known as MiFID 2 (Markets in financial instruments directive 2), is a legal act of the European Union. Together with Regulation (EU) No 600/2014 it provides a legal framework f ...
(MiFID) is the cornerstone of the
European Commission The European Commission (EC) is the executive of the European Union (EU). It operates as a cabinet government, with 27 members of the Commission (informally known as "Commissioners") headed by a President. It includes an administrative body ...
's
Financial Services Action Plan The Financial Services Action Plan (FSAP) is a key component of the European Union's attempt to create a single market for financial services. Created in 1999 and to last for a period of six years, it contained 42 articles related to the harmoni ...
that regulate operations of the EU financial service markets. It was reviewed in 2012 by the
European Parliament The European Parliament (EP) is one of the Legislature, legislative bodies of the European Union and one of its seven Institutions of the European Union, institutions. Together with the Council of the European Union (known as the Council and in ...
(EP) and the
Economic and Financial Affairs Council The Economic and Financial Affairs Council (ECOFIN) is one of the oldest configurations of the Council of the European Union and is composed of the economics and finance ministers of the 27 European Union member states, as well as Budget Minist ...
(ECOFIN). The European Parliament adopted a revised version of Mifid II on 26 October 2012 which include "provisions for position limits on commodity derivatives", aimed at "preventing market abuse" and supporting "orderly pricing and settlement conditions". The
European Securities and Markets Authority The European Securities and Markets Authority (ESMA) is an independent European Union Authority located in Paris. ESMA replaced the Committee of European Securities Regulators (CESR) on 1 January 2011. It is one of the three new European Sup ...
(Esma), based in Paris and formed in 2011, is an "EU-wide financial markets watchdog". Esma sets position limits on commodity derivatives as described in Mifid II. The EP voted in favor of stronger regulation of commodity derivative markets in September 2012 to "end abusive speculation in commodity markets" that were "driving global food prices increases and price volatility". In July 2012, "food prices globally soared by 10 percent" (
World Bank The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the Inte ...
2012). Senior British MEP Arlene McCarthy called for "putting a brake on excessive food speculation and speculating giants profiting from hunger" ending immoral practices that "only serve the interests of profiteers". In March 2012, EP Member Markus Ferber suggested amendments to the European Commission's proposals, intended to strengthen restrictions on
high-frequency trading High-frequency trading (HFT) is a type of algorithmic financial trading characterized by high speeds, high turnover rates, and high order-to-trade ratios that leverages high-frequency financial data and electronic trading tools. While there is no ...
and commodity price manipulation.


See also

*
List of commodity booms This is a list of economic booms created by commodities In economics, a commodity is an economic good, usually a resource, that has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly ...
*
Microexchanges MicroExchanges are lightly staffed, technology-driven marketplaces that have been enabled by the Internet/WWW which bring together buyers and sellers in key niche commodity markets. The marketplaces closely resemble (but are much smaller than) conve ...


Notes


References


Further reading


Understanding Derivatives: Markets and Infrastructure
Federal Reserve Bank of Chicago, Financial Markets Group * * *


External links

*
Open Historical Commodity Price Data
{{Authority control Derivatives (finance) Financial markets Trade United States federal commodity and futures legislation