Ever since the beginning of history, humans have been using commodities. This has created a necessity to trade commodities. However, as financial markets advances, trading commodities became a business unto itself.

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The modern world provides a plethora of options when it comes to commodities investing. Commercial users of the products can use these financial markets to hedge their exposure to such commodities. However, at the same time traders and speculators can also make a fortune if they are able to accurately predict the movement of these commodities.

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t is also essential that commodities must be tradable. Some commodities are directly listed on the exchanges and hence become tradable. Consider the case of brent or nymex crude oil. It can be purchased and sold at an exchange and is therefore highly tradable. On the other hand, consider a commodity such as plutonium. These are not directly listed on an exchange and are therefore not directly tradable.

 

 The most essential feature that makes any commodity tradable is liquidity. Liquidity means several people are buying into and out of these commodities at any given point of time. Therefore, there is always an active market for these commodities and prices are being quoted. Any person can virtually buy or sell an unlimited amount of these commodities at a very short notice. Liquidity ensures the presence of an active secondary market which is a pre-requisite for any type of financial trading to happen.

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Commodities’ trading is incredibly complex. This is because most of the time it involves trading in derivative instruments which by definition are quite complex. However, the commodities market also interfaces with equity and other markets.