Sunday, December 9, 2012

eToro : The Criteria for Listing Commodities on an Exchange



December 8th, 4:15 pm by Brett Chatz 


It may be unclear why some commodities are traded on futures exchanges while others are not.  The simple answer is that many commodities do not have a prominent role in theeconomy and therefore their exchange is not practical.  The reason commodities are exchanged if they have more economic value is that large producers of commodities can use exchanges to hedge against dropping prices and commodity purchasers can hedge against increasing prices.

Deliverability and Standardization

Commodities are traded in exchanges like the Chicago Mercantile Exchange which is a futures exchange.  The contracts are all standardized which means the purchaser understands the quality, location and quantity of the commodity.  These commodities must be deliverable to the purchaser.  Deliverability and standardization are two factors that must be met in order to list a commodity on an exchange.  For example, strawberries are not listed on an exchange as it would be difficult to deliver a perishable commodity.  Most of the strawberries could begin to break down in storage or during delivery.  It is also difficult to measure the quality of strawberries because there are too many factors that are involved in their quality measurements which makes trading strawberries impractical. However, oranges are the exception to the rule.  Frozen orange juice concentrate has been traded for a long time.  The standardization and deliverability of oranges was resolved by freezing the juice.  It can be easily transported and stored without perishing.
Demand of Commodities

A commodity must have a sufficient amount of demand to be traded on an exchange.  For example, wheat, corn and soybeans have a large demand and have been traded on commodities for many years.  These commodities are traded globally and there is no demand shortage.  However, this is not the case for all commodities.  Some commodities are only popular in particular regions or countries but lack global demand.  In addition, countries without a large supply of a particular commodity would not want to trade it as it is impractical.  For example, the U.S. uses a large amount of rubber but does not produce the material.  However, large amounts of rubber are produced in Asia so it is listed on Asian commodity exchanges. You can begin trading commodities at eToro by copying the trades of the top commodity traders in the network.  For more information, please watch the video below.


Disclaimer The analysis we provide is based on the average estimate of price movements in one day. Does not guarantee what we deliver is actually a proper and correct. Everything that happens in the decisions you make on your trading transaction is to be Your responsibilities. Visit Us www.deryworldscorp.web.id

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