Commodity Trader: Definition, What They Do, Where They Trade (2024)

FAQs

Commodity Trader: Definition, What They Do, Where They Trade? ›

A commodity trader is someone who helps their clients buy and sell commodities or raw goods. They have a variety of skills, including sales, interpersonal and financial knowledge. Commodity traders use the commodity trade process to exchange assets for profit.

A commodity trader buys and sells financial products based on market predictions. They carry out trades of commodities such as gold or oil on behalf of clients and the firm they work for. Commodity traders might be employed by investment or commercial banks, hedge funds, or private equity groups.

Commodities market offers profits to farmers, brokers, intermediaries and customers. Thus, attracting investments in the agriculture sector in the hope of better long term profits.

Generally speaking, commodities trade either in spot markets or financial commodity or derivatives markets. Spot markets can be physical or “cash markets” where people and companies buy and sell physical commodities for immediate delivery.

Commodities may minimize portfolio volatility.

Weather, politics or global production can affect commodities returns, so the historical correlation of commodities to traditional assets is low. As a result, the returns from commodities may help reduce volatility in a diversified portfolio.

Some job duties of a commodity trader may include: Tracking the market performance at domestic and international scales. Buying and selling goods at a price the client agrees on. Providing advice to clients about buying, selling or investing.

Commodity trading firms play a pivotal role in the global supply chain by bridging gaps between producers and consumers, and balancing supply and demand both within regional markets and at a global level.

At banks, sources say commodities trading salaries typically max out at $400k in the US (although the European bonus cap means they may be more in EMEA). Bonuses are discretionary. "The range is massive," says one headhunter of banks' commodities bonuses. "Plus they're deferred for at least three years."

A position is the amount of collateral or security, currency and commodity being owned by a dealer, individual, institution, or any other financial organisation. The position is of two types: 1. Long position-This is first owned before being sold. 2. Short position-This is borrowed before being sold.

One does not become a commodity trader overnight. To gain experience in this field, you may have to spend months or years learning the trade. Once you have the skills, you can consider working as an individual commodity trader or applying for a related job in a trading company dealing with such assets.

What is the basic knowledge about commodity trading? ›

Commodities trading involves buying and selling raw materials such as metals, energy, and agricultural products. Prices are influenced by supply and demand, geopolitical events, and global economic factors. Investors can use futures contracts and options to speculate on price movements or hedge against market risks.

How do I start trading commodities? First, choose from 35 commodity markets, or commodity-linked stocks and ETFs. Next, decide whether to speculate on market prices by going long or short. And finally, you'd need to open a live account with a provider who offers commodity trading.

Commodities are considered risky investments because the supply and demand of these products are affected by events that are difficult to predict, such as weather, epidemics, and natural and human-made disasters.

Try depositing about 10% of the contract value of the commodity you wish to trade, along with a maintenance margin. For example, if the margin money for trading a commodity is INR 40,000, you need to make a deposit of INR 4,000 plus the maintenance margin.

The first introduces the four big commodity traders – Archer Daniels Midland (ADM), Bunge, Cargill, and Louis Dreyfus – which are the focus of this study. Collectively, these trading companies are often referred to as 'the ABCD companies' because of the coincidence of their initials.

The salaries of Commodities Traders in The US range from $73,918 to $762,812, and the average is $166,453.

Advantages of Commodity Trading

Unlike stock trading or investing in mutual funds or ETFs, commodity trading offers tremendous leverage. In trading commodity futures, you typically only have to put up about 10% of the total contract value. This enables you to make much higher percentage gains with your trading capital.