Commodity Trading – Chapter 3: What is traded?

This is chapter number 3 out of 13. Read the rest:

Read Commodity Trading – Chapter 1: History of Commodity Trading
Read Commodity Trading – Chapter 2: Commodities Trading

Any cash commodity must fulfill 3 basic requirements before it can be successfully traded in the Futures market:

• The commodity has to be standardized and for the industrial & agricultural commodities, it must be in an unprocessed form. There are futures contracts which exist for wheat for instance, but not for flour. Wheat is an agricultural product in its raw unprocessed state. (Note that different kinds of wheat will have different Futures Contracts).
• The miller needs a wheat Futures contract to help him hedge his risk from price uncertainties while his customers for flour do not require flour Futures for such a purpose. A fixed quantity of wheat will yield a fixed amount of flour. The processing cost of wheat to flour is also fixed thus everything here is predictable.
• Sufficient shelf life is necessary for perishable commodities, because the delivery on a Futures contract is delayed.

2. The price of the commodity must fluctuate sufficiently to create uncertainty which allows for risk and the likelihood of profit (or loss!). 

Read Commodity Trading – Chapter 4: Using Commodity Trading as an Investment Vehicle
Read Commodity Trading – Chapter 5: Advantages of commodity trading
Read Commodity Trading – Chapter 6: Disadvantages of commodity trading
Read Commodity Trading – Chapter 7: Risks of Commodities Trading
Read Commodity Trading – Chapter 8: Risk Management
Read Commodity Trading – Chapter 9: Steps To Undertake While Trading In Commodity
Read Commodity Trading – Chapter 10: Commodity Trading – a losers Game?
Read Commodity Trading – Chapter 11: Learning to Trade Commodities
Read Commodity Trading – Chapter 12: Creating a Trading Plan
Read Commodity Trading – Chapter 13: Stress of Commodity Trading