Commodity Trading

Who is a Commodity Trader?

A commodity trader is an individual or business that focuses on investing in physical items such as oil, gold or agricultural products. Daily trading is often driven by expected economic trends or arbitrage opportunities in the commodity markets. Commodity markets typically trade in the primary economic sector, including industries that focus on gathering natural resources for profit. Most commodity trading involves trading futures contracts, but physical trading and derivatives trading are also common.

Oil and gold are two of the most traded commodities, but markets are also available for cotton, wheat, corn, sugar, coffee, beef, pork, timber, silver and other metals.

Important points

• Commodity traders are individuals or businesses that buy and sell physical commodities such as metals or oil.

• Traders in this area aim to take advantage of expected trends and arbitrage opportunities.

• Commodity traders may work to provide a raw material supply for a business or industry, to help create liquidity in an international market, or to invest in a speculative capacity.

Understanding Commodity Traders

Several different types of traders are active in the commodity market. Usually these traders deal with raw materials used at the beginning of the production chain. Examples include copper for construction or grains for animal feed. Some operate independently, trading on major stock exchanges such as the New York Mercantile Exchange, and others work for international oil companies, mining companies or other major commodity producers.

A commodity trader working for a producer wants to secure the best prices on purchases while simultaneously offering competitive offers to customers. Yet other commodity traders only work as broker-sellers like Vitol or Trafigura. Professional traders working for brokerage firms help create a deep and liquid international commodities market.

Commodity traders sometimes act as speculators and try to profit from small movements in commodity prices. These commodity traders do not really need and rarely take delivery of a particular asset they trade, but they try to take risks through future contracts. If they believe the prices are going up when they expect the prices to go down and that the goods are short, they will go for a long time.