A country’s economy relies heavily on the production, distribution, consumption and trade of goods and service from different players and sectors. Resources are managed by different economic agents such as individuals, governments and the businesses in order to sustain life to the wealth of the country. If there is one driver that is very essential to the growth and development of a country, it is commodity trading – an activity that has been accommodating the economy for more than thousands of years.
Commodity Trading Basics
Commodities are simply the goods and products that serve as the basis of the manufacturing and supply of foods. Generally, it is divided into four categories namely energy, which includes oil and gasoline, metals such as gold and silver, livestock and meat and agricultural products such as corn, sugar and rice.
Commodity trading is believed to have existed 150 years ago in the US and there are evidences pointing out that this activity initially started in Japan 1000 years ago. With this very long journey, it is true that it has provided wonders for the global trade and economy and the last 100 years would not be as fruitful without commodities.
In the recent time, the main purpose of commodity trading is to establish a centralized marketplace where market players, such as producers and sellers, can introduce their goods to those who wish to utilize them for consumption or manufacturing, making the economy much more efficient.
The exchange of commodities is vital to determine global prices. Typically, it follows the basic economic principle: lower supply means higher prices. Without commodity trading, a standard price for a specific product would be hard to establish as sellers would focus on arduous search for potential buyers.