Brought to You in Partnership with:





Home » Documents » Creating Wealth » Commodities

Commodities

The Commodities Exchange is an entity that determines and enforces rules and procedures for the trading of commodities and related investments, such as commodity futures. Commodities exchange also refers to the physical center where trading takes place. Modern commodity markets trade many types of investment vehicles and are often utilized by various investors from commodity producers to investment speculators.

A corn producer purchases corn futures (speculation that the price of corn will go up or down) on a commodity exchange to lock in a price for a sale of a specified amount of corn at a future date. This is done while speculators buy and/or sell corn futures with the hope of profiting from future changes in corn prices. Anticipated weather and other factors dictate the need for price speculations.

Chicago Board of Trade (CBOT)

The Chicago Board of Trade (CBOT) is a commodity’s exchange that trades in both agricultural and financial contracts. The CBOT originally traded only agricultural commodities such as wheat, corn and soybeans. Now, the CBOT offers options and futures contracts on a wide range of products including gold, silver, U.S. Treasury bonds and energy. The CBOT has recently automated its process adding electronic trading of futures contracts. The trading floor is an open auction market, where traders meet in a trading pit and primarily use hand signals to execute trades.

Raw Materials

Raw materials are commodities used in the primary production or manufacturing of a good. They are often natural resources like oil, iron and wood. Before being used in the manufacturing process raw materials are altered to be used in different processes. These commodities are bought and sold on exchanges around the world.