Commodity Trading

Details

Category: Trading Type

The modern commodity trading has their roots in the trading of agricultural products. While wheat and corn, cattle and pigs, were widely traded using standard instruments in the 19th century in the United States, other basic foodstuffs such as soybeans were only added quite recently in most markets. For a commodity market to be established there must be very broad consensus on the variations in the product that make it acceptable for one purpose or another.

The economic impact of the development of commodity trading is hard to overestimate. 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. Commodity trading advisor (CTA) is an asset manager who follows a set of systematic investment strategies. The advisors originally operated predominantly in commodities markets, but today they invest in any liquid futures market. They are responsible for the actual trading of managed accounts. There are approximately 800 registered with the National Futures Association (NFA), the self-regulatory organization for futures and options markets.

The two major types of advisors are technical traders and fundamental traders. Technical traders may use computer software programs to follow price trends and perform quantitative analysis. Trend following, or using technical analysis to follow swings in the markets, drives CTA performance and activity to a large degree. The exchange of raw or primary products is referred to as commodity trading. Commodity trading takes place on regulated commodities exchanges and offers an excellent opportunity to retail investors who want to diversify their portfolios beyond shares, bonds, and real estate. Currently, there are three multi-commodity exchanges in India and all of them have a national presence.