Commodities trading deals with agricultural products, such as wheat, malt, sugar and corn, as well as metals, such as gold and contracts based on the purchase and trade of these goods, as opposed to the stock market which deals with all types of financial instruments, such as stocks, government securities, interest rates and indexes.
With the advent of technology, both stock and commodities trading are now traded online. For purposes of discussion, we will focus on commodities trading online. The industrial revolution ushered in new technology that include more effective tools, a number of which are capable of creating more food. This new efficiency demanded more agricultural storage, transport, and more competent circulation of produce.
At first the markets could handle the rising demand for food, but as volume grew, the commodity markets with uniform pricing and delivery became progressively more significant. A system was then developed to cope with the hoarding of goods that happen during harvest times and with the scarcity that occur before the harvest. With the new system, buyers could arm themselves from price irregularity by closing a deal for a certain commodity that is fixed at a particular price before they have a need for it. The contract based on this system is now known as futures.
The place where all these agricultural products as well as contracts based on the agreements between buyer and seller are being traded are called commodities exchanges. Prior to the electronic age, there are certain places designated as commodities exchanges, however, these are now conveniently available on the net. Online trading are also referred to as screen-based or electronic trading.
In online commodities trading, customers send, buy or sell orders from their computers to an electronic marketplace offered by the exchange. There is no need to have brokers act in behalf of the customers, as brokerage approvals to trade are generated electronically. The online trading screen now takes the place of the trading pit. An advantage for online commodities trading is price transparency since the top five current bids and offers are posted on the trading screen, in full view of all electronic market participants.
As with any investment though, an uptick in a certain commodity where one places his money could generate for him huge earnings but a drop in prices would provide the same loss. For example, assuming prices for meats would go up in the succeeding three months, a meatshop owner decides to place an order for one cow from a cattle raiser who sells it for $5. This is to be delivered to the meatshop owner three months from when the deal is closed. They both sign a contract. The following day, cow prices rose to $6. The cattle raiser in this case loses $1 while the meatshop owner gains $1.
There are various trading sites available for online commodities trading. A minimum fee entitles an investor to create an account that entitles him to researches and technical analysis on listed companies, apart from actually trading online. Most have help desks and other tools necessary to assist an investor in coming up with the best possible judgment.
Online trading is great way to boost your investment without having to get out of the house and dressing the part. However, you must realize that commodities and the stock market in general live on volatile market conditions and therefore easily influenced by even the slightest economic and political changes. Click carefully.