Commodities are the most basic and reliable goods to base your trading on. It is possible that the practice of exchanging commodity may be as old as trading itself. A commodity could denote any physical item which humans value. Commodities will remain a crucial part of trade as long as there are humans. It could be items that are perishable, like meat and wheat. Its items could be for energy, like oil, natural gas, or coal. Gold and silver are examples of items that have less obvious uses.
A Short History of commodity trading
There is obviously quite a disconnect between how commodity trading may have functioned thousands of years ago, and how they function today. This is why we will shortly go over the history of commodity starting in the ancient era.
Originally trading in commodity trading referred to trading commodities of equal value without any intermediaries (i.e. money). This could be grains for gold, or any trade people could think of with the available materials. Around 4000 BCE, monetary exchanges began over 6000-years ago. In the ancient world (Mesopotamia, Egypt), people would have traded these items directly. Monetary exchange systems began to develop soon after. For example, in Sumer, the townspeople would trade clay tokens for livestock. They developed writing systems in tandem to keep track of their transactions. You could usually see engravings of these information on clay tablets. These clay tablets could be compared to the oldest contracts.
As time went on, people began to value other commodities. Gold and silver are two of the most popular commodities because of their visual appeal. They began to dress themselves in them as a way to show off their status. People could easily create any shape from them and adjust their volume. As commodity trading advisor definition these items were so valued but did not have much practical use, they slowly found alternative applications. These items were used as a currency, an intermediary for exchange.
As time went on, people still exchanged commodities for other commodities, services, or land. In most cases, they would try to estimate the value of a commodity by weighing it. Gold and silver were used as alternatives to these traditional commodities.
Modern Trading
By 1530, we approach something close to modern trading, with the founding of the Amsterdam Stock Exchange. The people would have used what we call rudimentary contract for trading goods. This includes forward contracts, options, and short sales. This type of institution spread throughout Europe and then to the United States. From there it continued to develop into the 19th and 20th centuries.
In this day and age, you have two options available to you. You should be aware of the different types of commodities markets if you decide to invest in this market. These are the Over the Counter market (OTC) and the Exchange Based market. OTC markets are direct exchanges between two parties without the use of an intermediary. An Exchange Based market is organized through a clearinghouse for the parties involved, to ensure that a settlement takes place.
Popular Investment Commodities
There are obviously a countless number of commodities worth looking into for trading. We will provide a brief summary of the most common commodities to give you an idea. These fall under a few different categories: agricultural (meat and agricultural), energy, and metals.