COMMODITY MARKET

Commodity Market refers to the markets that trade in primary rather than manufactured products. Soft commodities are agricultural products such as wheat, coffee, cocoa and sugar. Hard commodities are mined such as (gold, rubber and oil). Investors access about 50 major commodity markets worldwide with purely financial transactions increasingly outnumbering physical trades in which goods are delivered. Futures contracts are the oldest way of investing in commodities. Futures are secured by physical Assets. Commodity markets can be including physical trading and derivatives trading using spot prices, forwards. Futures and options on futures. Farmers have used a simple form of derivative trading in the commodity market for centuries for price risk management.
                A Financial derivative is a financial instrument whose value is derived from a commodity termed an underlie. Derivatives are either exchange – traded or over-The-Counter (OTC). An increasing number of derivatives are traded via clearing hoses some with central counter party clearing, which provide clearing and settlement services on a futures exchange, as well as off-exchange in the OTC market.
                Derivatives such as futures contracts, swaps, Exchange traded commodities, forward contracts, have become the primary trading instruments in commodity markets. Futures are traded on regulated commodities exchanges. Over-the-counter (OTC) contracts are “privately negotiated bilateral contracts entered into between the contracting parties directly.”
                Exchange traded funds (ETFs) began to future commodities in 2003. Gold ETF’s are based in “electronic gold” that does not entail the ownership of physical bullion, with its added costs of insurance  and storage in repositories such as the London bullion market.
                According to the world Gold Council, ETFs allow investors to be exposed to the gold market without any risk of price volatility associated with gold as a physical commodity.