Commodity market

Commodity markets are markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodities exchanges, in which they are bought and sold in standardized contracts.

It is generally agreed that commodities have an expected return of 5% in real terms which is based on the risk premium for 116 different commodities weighted equally since 1888 (Source Report 219171-Wharton Business School). Investment professionals often too mistakenly claim there is no risk premium in commodities. In addition, delivery day, method of settlement and delivery point must all be specified. Typically, trading must end two (or more) business days prior to the delivery day, so that the routing of the shipment can be finalized via ship or rail, and payment can be settled when the contract arrives at any delivery point. Unless the product or service can be guaranteed or insured to be free of liability based on where it came from and how it got to market it becomes impossible for sellers to guarantee a uniform delivery.

Generally, governments must provide a common regulatory or insurance standard and some release of liability, or at least a backing of the insurers, before a commodity market can begin trading. 5 Top global commodities markets are: New York Mercantile Exchange in USA, Tokyo Commodity Exchange in Japan, NYSE Euronext in European Union, Dalian Commodity Exchange in China and Multi Commodity Exchange in India.