Commodities and Futures Guide.com

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The commodities market are all set to take the center stage with government pumping stimulus packages across the globe it seems demand for it may rise because of the multiplier’s effect. This is an article about how commodities are going to perform and below mentioned are some views of the experts:

Commodities from oil to copper are poised to climb as government spending worldwide spurs a recovery in demand and companies curtail investment in mines and rigs, said Deutsche Bank AG’s Simon Grenfell.

“We’re building up to have a really strong price move” over the next two years, Grenfell, head of Asian commodities for Germany’s biggest lender, said in an interview yesterday in Singapore. The risk of a “super-spike” has increased, he said, expressing his own opinion.

Commodities jumped 15 percent this year after slumping 36 percent in 2008, their biggest decline in half a century based on the Reuters/Jefferies CRB Index, because of the global recession. This year, gasoline and copper doubled on signs the worst is past for the economy and as China increased inventories of crude oil and industrial metals.

The world economy will grow 2.5 percent in 2010, more than the 1.9 percent forecast in April, after shrinking 1.4 percent this year, according to the International Monetary Fund. China expanded 7.9 percent in the second quarter, the first time growth had accelerated in more than two years.

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While researching about the commodity trading we came across some basic conditions and intresting facts about commodities.

Commodity trading as we know it began with farmers (sellers) and dealers (buyers) beginning to commit to future exchanges of grain for cash in the 1800’s. To be traded as a commodity, the item must meet three basic conditions.

a)It has to be standardized and, for agricultural and industrial commodities, must be in a basic, raw, unprocessed state.

b) It must have an adequate shelf life due the fact that a futures contract is by definition, deferred.

c) There must be enough fluctuation to create uncertainty; this means both risk and potential profit for the buyer and seller.

Some interesting facts about commodities are:

The Chicago Butter and Egg Board was founded in 1898 and evolved into the Chicago Mercantile Exchange in 1919. It is now the largest futures exchange in the United States and the second largest exchange in the world for the trading of futures and options on futures. (Chicago Mercantile Exchange)

It is estimated that typically four percent of what is actually traded, or less, is actually delivered. A contract may be bought and sold many times before the delivery date as businesses attempt to manage their risk. This is what accounts for the large volume traded, though relatively little is delivered, since the basic purpose of a futures contract is to provide price-change protection. (Chicago Board of Trade)

The dollar value of futures contracts traded currently exceeds several fold the dollar value of common stocks traded on all U.S. stock exchanges.(National Futures Association)

On the New York Mercantile Exchange, about 1,000 contracts are bought and sold each minute. (New York Mercantile Exchange)

Most exchange trading floors are divided into pits/rings where traders stand facing one another. These are more or less shallow octagonal areas with raised steps around the edge. Each pit is designated for trading one or more futures contracts.(Chicago Mercantile Exchange)

Commodity exchanges have been established around the world. A partial listing includes Argentina, Australia, Austria, Brazil, Bulgaria, Hungary, Canada, China, India, Japan, Korea, New Zealand, Singapore, South Africa, Turkmenistan, the United Kingdom, and of course the United States. (Wall Street Executive Library (Rutgers University))

The Clearing House is responsible for clearing trades and for the day-to-day settlement. This is called “marked-to-market,” and means that your account is credited or debited based on that session’s gains or losses. As prices move for or against your position, funds flow into and out of your trading account. (Chicago Mercantile Exchange)

Introduced in 1956, the New York Mercantile Exchange’s platinum contract is the longest continuously traded precious metals contract in the world’s marketplace. (New York Mercantile Exchange)