Commodity market

What is a Commodity Market?

We have spoken a lot about financial assets. Let us now talk about physical assets like gold, cotton, and sugar, which are used as raw materials in manufacturing several products! It is in the commodity markets that producers and consumers of Soft Commodities (like coffee and cattle) and Hard Commodities (like oil and silver) meet.

Based on delivery timelines, commodity trade happens either on the ‘Spot’ or ‘Futures’ market. In the spot market, delivery takes place immediately after purchase, but in the futures market, the commodity is delivered on a future date at a predetermined price.

Commodity Futures are traded on regulated exchanges like India’s Multi Commodity Exchange (MCX) and America’s Chicago Mercantile Exchange (CME). Does the word ‘Futures Contract’ ring any bells?