Raw materials which are used for creating consumer goods are called commodities. These commodities are not sold to the end user or customer directly, but are used for creating finished products or services which are then sold to the customers.
How to buy and sell commodities?
Commodities are sold through Futures contracts. The buyers and producers of these commodities fix a price for the goods and in the future when the contract expires the goods need to sold to the buyer. This makes it easier for the producers, since they already have buyers lined up for the time when their commodities are ready to be sold.
For example, if a farmer has a futures contract with a buyer to purchase their produce at a future date for a certain amount, even if the market is low or the goods are selling at a low price, this farmer will get the previously decided upon amountfor the good he sells. In this way, they have buyers as well as assurance of their produce being sold at a price regardless of the market’s conditions.
In some cases it is also profitable to the buyer, since they do not have to repeatedly search for fresh raw material in the market. If they are able to analyse the commodity and its supply and demand pattern they can determine their futures contract accordingly.
There is also a second type of trader when it comes to commodities. These traders do not intend to buy or sell any commodities, but they observe the market and wait for volatility. This is when the make trades and earn profit through this volatile environment. Since the risks are high at this time, they also make more in terms of returns.
In you wish to become a commodities trader, visit our team of experts at PolicyInserv today and get started with commodity trading.
