COMMODITY EXCHANGE
WHAT IS COMMODITY?
In economics, a commodity is an economic good or service that has full or substantial fungibility: that is, the market treats instances of the good as
equivalent or nearly so with no regard to who produced them.[1][2]
In economics, the term commodity is used specifically for economic goods or
services that have full or partial but substantial fungibility; that is, the market treats their instances as
equivalent or nearly so with no regard to who produced them.[3] Karl Marx described
this property as follows: "From the taste of wheat, it is not possible to tell who
produced it, a Russian serf, a French peasant or an
English capitalist. Petroleum and copper are examples of
commodity goods:[5] their supply
and demand are a part of one universal market.
The price of a commodity good is typically
determined as a function of its market as a whole: well-established physical
commodities have actively traded spot and derivative markets. The wide availability of commodities
typically leads to smaller profit margins and diminishes the importance of
factors (such as brand name) other than price.
WHAT
IS A COMMODITIES EXCHANGE?
A commodities exchange is a legal entity that determines
and enforces rules and procedures for trading standardized commodity contracts
and related investment products. A commodities exchange also refers to the
physical center where trading takes place. The commodities market is
massive, trading more than trillions of dollars each day.
Traders rarely deliver any physical commodities through a
commodities exchange. Instead, they trade futures contracts, where the parties
agree to buy or sell a specific amount of the commodity at an agreed upon
price, regardless of what it currently trades at in the market at a a
predetermined expiration date. The most traded commodity future contract is
crude oil.
TYPES
OF COMMODITIES EXCHANGE
There are several types of modern commodities exchanges,
which include metals, fuels, and agricultural
commodities exchanges.
- Crude Oil: One of the most important commodities in the world,
crude oil is an unrefined petroleum product that occurs naturally. It is
used to produce different products including gasoline and petrochemicals.
The price for crude oil generally reported in the U.S. is based on the
NYMEX futures price. Contracts are based on 1,000 barrels and trade in
U.S. dollars per barrel. The third business day before the 25th calendar
day of the month preceding the delivery month is the last trading day for
crude oil.
- Gold: This is one of the world's most widely-traded
precious metals. While investors can buy and sell the physical
commodities, traders typically trade gold futures contracts on commodities
exchanges. Contracts are generally sized at 100 troy ounces, and are priced
in U.S. dollars per troy ounce. The last trading day for gold is the third
last business day of the delivery month.
- Lumber: This industry has two main products for the end
user—softwood and hardwood. Softwood is used primarily in construction,
while hardwood is used in flooring and furniture construction, and to make
panels and cabinets. Contract sizes for lumber are generally 110,000
nominal board feet and are traded in U.S. dollars per pound. The business
day immediately preceding the 16th calendar day of the
contract month is the last trading day for lumber.
- Natural Gas: This commodity is used to heat homes, helps generate
electricity, and also has other uses in the commercial and industrial
industries. Natural gas contracts are sold by 10,000 million British
thermal units (mmBtu). All contracts are traded in U.S. dollars per mmBtu.
The final trading day of the month for natural gas is three business days
prior to the first day of the delivery month.
- Cotton: Cotton is the most widely-used fiber in the world.
Cotton fibers are collected and made into yarn and other textiles for
clothing and other household goods. Cotton contracts are sized at 50,000
pounds, and trade in U.S. dollars per pound. The very last day of trading
for cotton is 17 business days from end of spot month.
CONDITIONS
NECESSARY FOR TRADING
i.
Compulsory Membership:
A trade union is based on its organizational
strength. The trade union should possess maximum membership in order to
consolidate itself as an organization. In order to make trade unions effective
instruments of labor welfare, it is important that all the workers should
become its members compulsorily. A nominal membership will not be working in
this area. To make a trade union more effective, all the workers should be
actively associated with the work of the trade union.
ii.
Strong Economic Base:
For a successful functioning of the trade union,
it not only needs members but also a strong monetary base. The trade unions
need large funds to support their members in times of emergency such as strikes
and lockouts. The trade unions do not have special means of collecting funds.
So, it is necessary that all the members contribute regularly for their
working. However, the membership fee differs from one firm to another taking
various other factors into consideration.
iii.
Freedom from External Pressures:
Trade unions should function as independent
organizations. They should be free from any external pressure or control.
Various political parties do try to influence the trade unions, as they are
more concerned about their selfish ends rather than the workers’ welfare.
iv. Spirit of Unity:
A trade union is based on the spirit of unity
and sacrifice among its members. Trade unions are able to function only on the
strength of unity. For solving any problem, unity among the members of the
trade union is very important.
v.
Capable Leadership:
Capable and efficient leaders are required
for the successful working of the trade unions. A person who is dedicated and
thinks about the welfare of the workers should lead a trade union. Few trade
unions are quite selfish and use the workers for their own selfish ends.
Thus, it is very important that the
leadership of the trade unions should be given to those who are genuine and
selfless and interested in the welfare of the workers. The leader of the trade
union should himself be a worker, because only a worker can understand the
problems of the workers.
vi.
Practical Outlook:
The main aim of the trade unions is to look
after the interests of the labor and promote their social and economic
welfare. These aims can only be achieved in the context of industrial prosperity.
Therefore, it is important to consider the economic and monetary conditions off
the industry in order to achieve the social and economic well-being of the
workers.
In this context, it is necessary that a trade
union should adopt a practical attitude to all the problems and act only if the
problem is practical and if there is a possibility to meet the actual
conditions. Unreasonable demands will create conflicts and disharmony.
vii.
Democratic Outlook:
The democratic structure in a trade union
contributes to its successful working. By democratic structure we mean that the
opinion of each and every member should be taken into account. While exercising
the privilege of vote in trade union affairs, the member develops a sense of
dignity and makes a mark of his importance. This helps to keep up his morale
and loyalty. It is always preferred that the workers themselves should choose
the leaders of the trade unions democratically.
viii.
Constructive Outlook:
The trade unions should adopt a constructive
attitude in order to achieve their goals. The workers should not think their
bosses as enemies but instead try to settle their problems by mutual
consultation. Few trade unions try to poison the minds of workers against the
employers and try to instigate them to violence. This kind of negative attitude
will not work out. Trade unions should adopt a policy, which is beneficial for
both the employees and the employers.
ix.
Freedom from Politics:
Political interference greatly undermines the
importance of trade unions. Sometimes, the union leaders forget their main aims
and indulge in politics. These kinds of leaders do not benefit the workers
rather harm their interests.
x.
Aims of Welfare:
The primary aim of any trade union should be
the welfare of the workers. The trade unions should refrain from all such
activities, which act as constraints to the welfare of the workers.
REQUIREMENTS
FOR TRADING
Rule 1: Always
Use a Trading Plan
A trading plan is a written set of rules that
specifies a trader's entry, exit and money management criteria. Using a trading plan allows
traders to do this, although it is a time-consuming endeavor.
With today's technology, it is easy to test a
trading idea before risking real money. Known as backtesting, this practice applies trading ideas to historical data, allows
traders to determine if a trading plan is viable, and also shows the expectancy
of the plan's logic. Once a plan has been developed and backtesting shows good
results, the plan can be used in real trading. The key here is to stick to the
plan. Taking trades outside of the trading plan, even if they turn out to be
winners, is considered poor trading and destroys any expectancy the plan may
have had.
Rule 2: Treat
Trading Like a Business
In order to be successful, one must approach
trading as a full- or part-time business—not as a hobby or a job. As a hobby,
where no real commitment to learning is made, trading can be very expensive. As
a job, it can be frustrating since there is no regular paycheck. Trading is a
business and incurs expenses, losses, taxes, uncertainty, stress, and risk. As
a trader, you are essentially a small business owner and must do your research and
strategize to maximize your business's potential.
Rule 3: Use
Technology to Your Advantage
Trading is a competitive business, and it's
safe to assume the person sitting on the other side of a trade is taking full
advantage of technology. Charting platforms allow traders an infinite variety
of methods for viewing and analyzing the markets. Backtesting an idea on
historical data prior to risking any cash can save a trading account, not to
mention stress and frustration. Getting market updates with smartphones allows
us to monitor trades virtually anywhere. Even technology that today we take for
granted, like high-speed internet connections, can greatly increase trading
performance.
Using technology to your advantage, and
keeping current with available technological advances, can be fun and rewarding
in trading.
Rule 4: Protect
Your Trading Capital
Saving money to fund a trading account can
take a long time and much effort. It can be even more difficult (or impossible)
the next time around. It is important to note that protecting your trading capital is
not synonymous with not having any losing trades. All traders have losing
trades; that is part of the business. Protecting capital entails not taking any
unnecessary risks and doing everything you can to preserve your trading
business.
Rule 5: Become a
Student of the Markets
Think of it as continuing education—traders
need to remain focused on learning more each day. Since many concepts carry
prerequisite knowledge, it is important to remember that understanding the
markets, and all of their intricacies, is an ongoing, lifelong process.
Hard research allows traders to learn the
facts, like what the different economic reports mean. Focus and observation
allow traders to gain instinct and learn the nuances; this is what helps
traders understand how those economic reports affect the market they are
trading.
World politics, events, economies—even the
weather—all have an impact on the markets. The market environment is dynamic.
The more traders understand the past and current markets, the better prepared
they will be to face the future.
Rule 6: Risk Only
What You Can Afford to Lose
Rule No.4 mentions that funding a trading
account can be a long process. Before a trader begins using real cash, it is
imperative that all of the money in the account be truly expendable. If it's
not, the trader should keep saving until it is.
It should go without saying that the money in
a trading account should not be allocated for the kids' college tuition or
paying the mortgage. Traders must never allow themselves to think they are
simply "borrowing" money from these other important obligations. One
must be prepared to lose all the money allocated to a trading account.
Losing money is traumatic enough; it is even
more so if it is capital that should have never been risked, to begin with.
Rule 7: Develop a
Trading Methodology Based on Facts
Taking the time to develop a sound trading
methodology is worth the effort. It may be tempting to believe in the "so
easy it's like printing money" trading scams that are prevalent on the
internet. But facts, not emotions or hope, should be the inspiration behind
developing a trading plan.
Traders who are not in a hurry to learn
typically have an easier time sifting through all of the information available
on the internet. Consider this: if you were to start a new career, more than
likely you would need to study at a college or university for at least a year
or two before you were qualified to even apply for a position in the new field.
Expect that learning how to trade demands at least the same amount of time and
factually driven research and study.
Rule 8: Always
Use a Stop Loss
A stop loss is a predetermined amount of risk that a trader is
willing to accept with each trade. The stop loss can be either a dollar amount
or percentage, but either way it limits the trader's exposure during a trade.
Using a stop loss can take some of the emotion out of trading since we know
that we will only lose X amount on any given trade.
Ignoring a stop loss, even if it leads to a
winning trade, is bad practice. Exiting with a stop loss, and thereby having a
losing trade, is still good trading if it falls within the trading plan's
rules. While the preference is to exit all trades with a profit, it is not
realistic. Using a protective stop loss helps ensure that our losses and our
risk are limited.
Rule 9: Know When
to Stop Trading
There are two reasons to stop trading: an
ineffective trading plan, and an ineffective trader.
An ineffective trading plan shows much
greater losses than anticipated in historical testing. Markets may have
changed, volatility within a certain trading instrument may have lessened, or
the trading plan simply is not performing as well as expected. One will benefit
from remaining unemotional and businesslike. It might be time to reevaluate the
trading plan and make a few changes or to start over with a new trading plan.
An unsuccessful trading plan is a problem that needs to be solved. It is not
necessarily the end of the trading business.
An ineffective trader is one who is unable to
follow his or her trading plan. External stressors, poor habits and lack of
physical activity can all contribute to this problem. A trader who is not in
peak condition for trading should consider a break to deal with any personal
problems, be it health or stress or anything else that prohibits the trader
from being effective. After any difficulties and challenges have been dealt
with, the trader can resume.
Rule 10: Keep
Trading in Perspective
It is important to stay focused on the big
picture when trading. A losing trade should not surprise us—it is a part of
trading. Likewise, a winning trade is just one step along the path to
profitable trading. It is the cumulative profits that make a difference. Once a
trader accepts wins and losses as part of the business, emotions will have less
of an effect on trading performance. That is not to say that we cannot be
excited about a particularly fruitful trade, but we must keep in mind that a
losing trade is not far off.
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