Those investors are now turning to commodities in record numbers, and they're using every possible financial instrument to gain exposure to physical commodity prices.
Well-known media outlets provide heavy coverage of commodity prices
Those factors, combined with the underlying perception that emerging economies will require greater commodity consumption, will result in accentuated volatility in commodity prices.
Research coverage of commodities by major brokerage firms also helps promote commodities. Competition among brokers will also add to the promotion of commodities as investments. Demand for commodities has become easier to quantify than ever before. It is exhibited through the success of "proxy" products, including mutual funds, equity index funds, equity index options, and commodity futures. On the trading side, there are dozens of derivatives ranging from traditional commodity futures contracts, to options on equity indexes that track the performance of specific commodity sectors. The index covers the combined performance of a basket of commodities via their associated futures prices.
Commodity Trading and the Future of Commodity Markets
Across the world commodity trading activity takes place on a range of modern, regulated commodity exchanges. A wide range of commodities will be traded between end user buyers and producer sellers under the umbrella of standard contract rules and commodity trading regulations.
In effect world commodity exchanges facilitate the buying and selling of raw commodities ranging from crude oil, copper and wheat to platinum and orange juice.
The basis of commodity trading activity is the buying and selling of futures contracts for a whole range of commodities. Over recent years the volume of electronically traded futures contracts has increased significantly, as a number of exchanges have combined to form a super commodity exchange.
For example, Dalian Commodity Exchange in China has ambitious plans to develop beyond its current specialism in agricultural commodities, and move to industrial metals and more.
Selecting a Commodity Broker
Understanding the dynamics involved in choosing a commodity broker is as much about understanding yourself as it is getting to know the commodity broker. Since commodity trading can be more involved than trading stocks, it is more important to select the right commodity broker than it is to select the right stock broker.
About Commodity Futures and Commodity Brokers
By definition, a commodity market is the location where sellers and buyers are about to conduct business in futures trading. Commodity future contracts can be written for any type of commodity such as gold, lumber, livestock, currency, and many others.
Two Types of Commodity Brokers
Each type of commodity broker has advantages and disadvantages that should be considered when making a decision.
Full Service Brokers
This type of commodity broker is usually recommended for new or inexperienced investors, or for those investors who invest in numerous markets. Full service commodity brokers usually provide more information, advice and help to their clients; they often work with investors to create personalized investment strategies. Full service brokers that specialize in trading commodities are also known as Introducing Brokers.
Discount Brokers
This type of commodity broker typically works better for more successful traders. How Do You Find the Right Commodity Broker?
Some of the traits that you should seek in your commodity broker are:
You don't want your commodity broker to learn how to invest at your expense. Many commodity brokers will give you a free trial to "test drive" their service.