What is a Commodities Exchange?

A commodities exchange refers to an organized marketplace where derivative products and commodities are traded. Trades that take place in a Commodity exchange include the trade of raw products and materials such as metal, agricultural items, and contracts such as forward contracts, futures, and options. Examples of commodity exchanges in the world are the New York Mercantile Exchange (NYMEX), Intercontinental Exchange (ICE), Kansas City Board of Trade (KCBT), Chicago Mercantile Exchange (CME), London Metal Exchange (LME), among others.

How Does a Commodities Exchange Work?

Aside from the products listed above, there are other sophisticated items that are traded in commodities exchanges. Generally, in a Commodity exchange, futures contracts can be traded for commodities that will be delivered at a particular time of the month. Real market traders trade in the commodities market, as well as speculators who trade in futures contracts just to make a profit.

Where to Invest in Commodities

Numerous commodities exchanges exist around the world, they include;

• Mercantile Exchange Nepal Limited (MEX), Nepal
• Australian Securities Exchange (ASX), Australia
• Tokyo Commodity Exchange (TOCOM), Japan
• Central Japan Commodity Exchange (C-COM), Japan
• Multi Commodity Exchange (MCX), India
• Dubai Mercantile Exchange (DME), Middle East
• Singapore Exchange Limited (SGX), Singapore
• Dalian Commodity Exchange (DCE), China
• Zhengzhou Commodity Exchange (ZCE), China
• The South African Futures Exchange (SAFEX), South Africa

There are certain standards that guide transactions in the commodities exchanges, although, there might be some variance depending on the regulations of the country.

Investment Characteristics of Commodities

Commodities in the exchange markets are influenced by the principles of demand and supply. When there is a disruption in the supply of derivatives and commodities in the market, prices tend to go up. It has been observed that a decline in the number of raw materials available in the commodities market can create a spike in price. Also, when there is a higher demand in the market, it will lead to higher prices.

Types of Commodities

There are different categories of commodities that can be traded in the commodities exchange, they include the following ;

• Agricultural products: wheat, barley, sugar, maize, cotton, cocoa, coffee, and cooking oil
• Metals: Copper, gold, silver, and platinum
• Energy: gasoline, Crude oil, and natural gas
• Livestock: milk products, pork bellies, feeder cattle