How do the commodity markets work?

Discussion in 'Financial Futures' started by db66trader, May 18, 2006.

  1. Could someone briefly explain how the commodity markets actually work or direct me to a site that explains? I’m a bit confused about the trading of the physical commodity in relation to the ‘paper’ commodity.

    How are the physical commodities bought and sold and how do these trades and prices connect to the trades made on an exchange.

    If a farmer or mining company sells it’s product to a manufacturer, is the price based on the exchange price at the time or is it a privately negotiated price?
    Can the farmers or mining co’s sell their product direct on the exchange?

    Can a commodity trader buy a tanker of oil from a producer and then turn and sell it on the commodity exchange at a profit?

    How does this all work, how many different stages are there, who is involved and how much profit/cost is involved for each participant before it gets to the traders in the commodity exchanges?

  2. spot is if you want to buy corn today.
    futures are if you want to buy corn and recieve delivery in the future.
  3. hi. the futures exchnages have info also. just find the education section. cme probably will respond to questions,or will direct to better info. this link is from the cbot
    have you done a search with google? good luck,3181,492,00.html
  4. Commodity & Futures markets
    See: Commodity Markets [​IMG] .

    Leo Melamed on the origins of futures says:
    Johnny has it right.
    In all cases it initially starts with a paper contract.
    Privately negotiated, based on the exchange price at the time. Yes!
    They can deliver when they are short. Yes!

    Again it depends. The exchange makes the price. Everyone else does all the other stuff.
    Exchanges web sites are a total waste of time. Forget getting anything-useful there.