Trading Commodities Online
Commodities trading deals with agricultural products, such as wheat, malt, sugar, and corn, as well as metals, such as gold, and contracts based on the purchase and trade of these goods, as opposed to the stock market which deals with all types of financial instruments, such as stocks, government securities, interest rates, and indexes.
With the advent of technology, both stock and commodities trading are now traded online. For purposes of discussion, we will focus on commodities trading online.
The industrial revolution ushered in new technology that include more effective tools, a number of which are capable of creating more food. This new efficiency demanded more agricultural storage, transport, and more competent circulation of produce.
At first, the markets could handle the rising demand for food, but as volume grew, the commodity markets with uniform pricing and delivery became progressively more significant. A system was then developed to cope with the hoarding of goods that happens during harvest times and with the scarcity that occurs before the harvest.
With the new system, buyers could arm themselves from price irregularity by closing a deal for a certain commodity that is fixed at a particular price before they have a need for it. The contract based on this system is now known as futures.
The place where all these agricultural products as well as contracts based on the agreements between buyer and seller are being traded are called commodities exchanges.
In online commodities trading, customers send, buy or sell orders from their computers to an electronic marketplace offered by the exchange. There is no need to have brokers act on behalf of the customers, as brokerage approvals to trade are generated electronically. The online trading screen now takes the place of the trading pit.
An advantage for online commodities trading is price transparency since the top five current bids and offers are posted on the trading screen, in full view of all electronic market participants.
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