Thursday, April 16, 2009

Commodities trading

Commodities exchanges usually trade futures contracts on commodities, such as trading contracts to receive something, say corn, in a certain month. A farmer raising corn can sell a future contract on his corn, which will not be harvested for several months, and guarantee the price he will be paid when he delivers; a breakfast cereal producer buys the contract now and guarantees the price will not go up when it is delivered.

This protects the farmer from price drops and the buyer from price rises.

Speculators and investors also buy and sell the futures contracts to make a profit and provide liquidity to the system.
Posted by edz at 3:34 AM

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