What are commodity markets?

Most of the material for retail investors is about trading the stock market. They are considered as a source of solid income for short- and long-term investments.
Considerable attention is also paid to the risks that are at stake in trading securities.
acceptable level even for a beginner. Against this background, it turned out to be undeservedly forgotten
An important segment is the commodity markets, which can bring many pleasant surprises.

Assets and sites

Commodity markets – markets where spot transactions are concluded or futures trading is carried out
contracts for certain types or groups of assets that relate to commodity or
raw materials.
These asset groups are usually classified as:

• Metals as raw materials for industrial production: copper, aluminum, titanium, lead, nickel,
  rare earth metals, etc.;
  * Energy carriers: crude oil of various grades and refined petroleum products (for example,
  heating oil, automobile fuel), natural gas;
  * Precious metals: gold and silver in bars and other forms, platinum metals
  groups;
  * Agricultural products and raw materials for the food industry. Here
  belong to several groups. The first group includes grains and legumes; Secondly, sugar
  coffee, cocoa, vegetable oil, milk, meat and animal products;

Commodity markets include two segments:

1. Over-the-counter. As a rule, this is where transactions involving the actual delivery of goods are concluded.
They can be divided into spot (buy/sell “here and now”) and urgent (forward)
contracts involving settlement at current prices with delivery in the future;
2. Exchange. The main option for trading commodity assets is futures contracts.
Moreover, their volumes can significantly exceed production volumes, and some of them
are settlement (non-deliverable), when after the expiration of the contract between the parties
Only monetary settlement is carried out without actual transfer of goods.
On a note! For a retail investor, only the stock market is of interest.
Concluding transactions over the counter involves certain difficulties. For example,
organization of transportation and storage of goods, significant amounts of capital for
concluding transactions, having the status of a qualified investor, etc.

The world's largest exchange platforms where transactions on commodities and raw materials are concluded
assets are:
*NYMEX (New-York Mercantile Exchange), whose main specialization is oil trading,
petroleum products and metals.
CME (Chicago Mercantile Exchange). The world's largest high-end trading platform
diversification of producers and huge turnover. To the main commodities,
products presented here include: rubber, timber, fertilizers, cattle, meat and

a number of other goods from the category "soft commodities", that is, those that are grown and not
are mined.
NYBOT (New-York Board of Trade). The oldest commodity exchange in the United States, operating primarily
agricultural products.
TOCOM – Tokyo Commodity Exchange. Almost all groups are widely represented on it
goods: from precious metals (gold, silver and platinum) and oil to rubber, wool, cotton and
other
LME (London Metal Exchange), which trades both precious and industrial metals
metals.
For your information! The structure of commodity markets also includes numerous universal
regional and specialized sites. The latter, for example, include Diamond

exchange in Belgium (Brussels), Fur exchange in Canada (Toronto, there is a similar one in St.
Petersburg).

Why are commodity markets interesting for a private investor?

Assets of commodity and raw material groups can represent an investor, including a private one,
significant interest. This is due to the features that distinguish them from other markets:

• Each of them has a real physical expression, and, accordingly, an economic
  value.
  * Their pricing is as fair as possible and depends mainly on the balance of demand/
  offers. The price (especially for transactions with actual delivery) is practically not included
  future earnings, and the influence of most geopolitical factors is largely
  leveled.
  * Almost all assets do not exhibit high volatility, but the ranges
  their price fluctuations are quite wide. With the right approach to building trading systems, this
  allows you to receive a return on investment higher than in other segments.
  * The behavior of assets is more predictable than in other markets, since it is determined in
  mainly global factors rather than local ones.
  * The mechanisms of reaction to inflationary processes differ significantly from other markets. WITH
  With the growth of inflation, quotations on commodity markets are predominantly growing, which allows
  receive additional income.
  * Low correlation coefficient with the behavior of other markets makes it possible to significantly
  expand diversification opportunities.

How should you invest in commodity markets?

A retail investor does not have many options for investing in commodity markets:

1. Purchasing derivatives on the derivatives market. Most interesting here
settlement futures are presented. They reflect the price dynamics of underlying assets, but do not require
Deliveries are ensured, that is, transportation, storage and further sales. Serious disadvantage
Such a conversation implies a high risk of futures contracts, which is especially critical for
newbies. In addition, futures can hardly be called investment income. Contract duration
limited, and it itself brings exclusively speculative income. In this regard, it is required the right approach to building an effective strategy for active long-term
investing.
2. Purchase of shares of manufacturers in the relevant sector. it’s hard to name this option
investments directly into the commodity market, but it largely decides
The advantages of investing in goods and working on stock exchanges.
3. Buying commodity ETFs. Most of these funds track futures prices.
contracts, some subsequent to probable commodity indices. Minor part
uses as assets of companies operating in commodity markets.
The advantage of this type of situation is the diversification of investments. However, there are quite a few shortcomings here.
First, tracking futures may result in discrepancies with actual prices.
assets. Secondly, most of them have a serious bias towards the energy sector,
which does not always suit the stop.

Investment risks

The main risks of investing in commodity markets have already been discussed above, but there are a number of
Additional nuances you need to know about:

* Number of goods and product groups available to a private investor for one or more
sites appears to be limited. This does not allow you to create a complete portfolio with
such indicators of profitability, efficiency and effectiveness.
* Not all commodity market instruments have high liquidity. This allows
large players manipulate prices even without any laws, which could result
losses for retail stops.
*Most products exhibit stable seasonal cycles. This is not allowed
providing stable trading systems and strategies.