Wednesday May 25, 2022

Let’s start trading in commodities

Commodity trading has a great future ahead of it. If many people have become involved in shopping and selling in the form of events in recent years, there will no doubt be many others buying and selling commodity raw materials in the future.

As we know it, the process is practically the same – all you have to do is sweat, phone and broker so that you can buy or sell a stock or commodity.

So let’s get into the process of trading in commodities, or so-called trading, go a little light.

Trading commodities is in Czech terms termed as “term trading”, or more often futures trading in English. In contrast, e.g. from the event, where the shares of a certain company are traded, in commodity (futures) trades, as we have said several times, trades are traded in raw materials.

Each raw material (commodity) is then traded with a certain term to date; mete si nap. buy her a penny with the delivery in December of the same year (or a penny that is not even grown).

If you buy such a money, it is returned to the store by a contract (so-called futures contract) and the supplier is obliged to deliver to the deposit of such a contract by the end of December of that year they are obliged to withdraw the conclusion of the contract, at a pre-determined price (ie if the contract is not delivered to anyone else before the deadline, which will always be the case).

In order to understand the essence and principle of commodity trading, it is necessary to go for a moment into the history of commodity trading and its development and form as we know it today.

The history of commodity trade dates back to some sources and dates back to 6,000 years old. However, the first actually preserved evidence (concerning commodity trade) relates to Japan, where this trading instrument was used to secure the family sometime around the 17th century. Although several centuries have passed since then, the principle of Japanese “equal” commodity trade has remained very similar to how commodities are traded today.

The goal of Japanese growers was to provide funding for seasonal cultivation. If farms wanted to sell a certain amount of money with the aim of selling it at a later profit, they needed to determine the capital from which they would finance it (wage costs, rate costs, reimbursement and harvest of the family, etc.). there was a possibility to “sell” in some way or go before growing it.

Let’s say that the farm knows that for the price of XY it can grow 100 tons of re. A certain customer (eg the owner of a store) again knew that he would need the first 100 tons of water for five years. The two therefore agreed that the farm would provide the customer with 100 tons of land, which will be delivered to the farm within a certain period within the next year, and the trader to pay a pre-agreed price for it (the price was acceptable for the farm. patin profit).

This agreement was, of course, suitable for both parties – the farm had to go with its certain buyer before, not at all started growing, and the trader knew in advance how much to pay in five years. Their agreement was then signed by a contract, which today is called a futures contract. With this contract, the grower was then able to go to the first bank and on its basis, as principal, to obtain a loan for financing.

Over time, the bag began to show that this method of closing a futures trade is not always appropriate for both parties: it could be e.g. stt that the year when the farm was growing for a predetermined buyer, there was an overall big shortage, and so the price skyrocketed.

The farm was then probably disappointed, or he was obliged to sell his family at a pre-agreed price, even though the family’s price was several times higher in value. On the other hand, a trader who entered into a futures contract with a farm could congratulate himself because he knew he had to pay much less for his price than the current market price (so he would be able to sell the pre-contracted company with a ton of profit).

So it didn’t take long for someone to think that it would be possible to trade futures contracts themselves. Nap. If a farm knows that the family will be bad this year and the price goes up, it could “get rid” of its contract, sell it at a reasonable profit to another farm (which necessarily needed a contract due to a loan from a bank) and get rid of of his volume.

In the same way, the trader could have speculated: if he knew that the family would be wrong, he could, as a whole, negotiate a huge number of futures contracts all over Japan, which at the moment when the price went up, of course, gained value. The trader could thus keep only one contract (necessary for his own trade) and sell the other contracts with a ton of profit to anyone who necessarily needed ri (which was just a shortage).

Over time, it has turned out that futures contracts are getting rich quick for many in a great way (for others, they are getting poorer). Futures contracts also began to be bought by people who did not have a growing stock or actually needed them.

They bought the contracts in the hope that the next year will be bad and they will be able to sell their cheap contracts with a fifth profit. If, on the contrary, the genus was abnormally rich and the price of re reached its minimum, these speculators, of course, got rid of their futures contract with a loss.

Today, futures contracts are traded on many commodities – they are a variety of plant and nutrient products, but also metals, years of peace, currency and more. In the same way, futures contracts are used not only by farms and speculators on this day, but also by a large customer who is thus hedged against the sudden prices of commodity taxes in the future (so-called hedging).

ryvek is from the book
“Trading on commodity markets”

vydan nakladatelstvm City Publishing,
For more information, visit
www.grada.cz

ryvek is from the book
“Trading on commodity markets”

vydan nakladatelstvm City Publishing,
For more information, visit
www.grada.cz

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