How do the commodity markets work?

[db66trader]

Could someone briefly explain how the commodity markets actually work or direct me to a site that explains? I’m a bit confused about the trading of the physical commodity in relation to the ‘paper’ commodity.

How are the physical commodities bought and sold and how do these trades and prices connect to the trades made on an exchange.

If a farmer or mining company sells it’s product to a manufacturer, is the price based on the exchange price at the time or is it a privately negotiated price?
Can the farmers or mining co’s sell their product direct on the exchange?

Can a commodity trader buy a tanker of oil from a producer and then turn and sell it on the commodity exchange at a profit?

How does this all work, how many different stages are there, who is involved and how much profit/cost is involved for each participant before it gets to the traders in the commodity exchanges?


Thanks

 

[Arbitrageur]

hmm.. i'm sure i saw the exact same post just now in T2W, so i'll give the exact same answer:

http://www.futures-investor.co.uk/f...ntroduction.htm

Idiots guide to how trading in futures and commodities works

 

[horribilicus]

Some people think "how the commodity markets work" is such a complicated topic that they have written entire books to answer the question. Possibly you might benefit from reading or skimming one or more of them.

http://www.amazon.com/gp/product/0471732923/
http://www.amazon.com/gp/product/0965659305/
http://www.amazon.com/gp/product/0471893765/
http://www.amazon.com/gp/product/0071341706/
http://www.amazon.com/gp/product/0070647577/
http://www.amazon.com/gp/product/0195144708/

 

[Johnny Walker]

spot is if you want to buy corn today.
futures are if you want to buy corn and recieve delivery in the future.

 

[battle river]

hi. the futures exchnages have info also. just find the education section. cme probably will respond to questions,or will direct to better info. this link is from the cbot
have you done a search with google? good luck


http://www.cbot.com/cbot/pub/page/0,3181,492,00.html

 

[-ooO-(GoldTrade]

Commodity & Futures markets

Quote from db66trader:Could someone briefly explain how the commodity markets actually work or direct me to a site that explains?

See: Commodity Markets .

Leo Melamed on the origins of futures says:

"It is no simple task to pinpoint with any degree of exactitude the precise moment when the idea of futures and options was born." __

"Indeed, the idea of establishing forward availability of product as well as its future price was conceived at the dawn of mankind, perhaps at that inspirational moment just after Eve bit into the proverbial apple and then frantically sought to make a futures contract with Adam." __

"Clearly, the first recorded application of futures is Biblical, when Joseph outlined to the Pharaoh his plan for forward buy hedges in grain to protect the land of Egypt from the coming seven years of famine."

Quote from db66trader: I’m a bit confused about the trading of the physical commodity in relation to the ‘paper’ commodity.

Johnny has it right.

Quote from Johnny Walker:Spot is if you want to buy (or sell) corn today.
Futures are if you want to buy (or sell) corn and receive deliver in the future.

Quote from db66trader:How are the physical commodities bought and sold and how do these trades and prices connect to the trades made on an exchange.

In all cases it initially starts with a paper contract.

If a farmer or mining company sells it’s product to a manufacturer, is the price based on the exchange price at the time or is it a privately negotiated price?

Privately negotiated, based on the exchange price at the time. Yes!

Can the farmers or mining co’s sell their product direct on the exchange?

They can deliver when they are short. Yes!

Can a commodity trader buy a tanker of oil from a producer and then turn and sell it on the commodity exchange

Yes!

at a profit?

Depends.

How does this all work, how many different stages are there, who is involved and how much profit/cost is involved for each participant before it gets to the traders in the commodity exchanges?

Again it depends. The exchange makes the price. Everyone else does all the other stuff.

Quote from battle river:hi. the futures exchanges have info also. just find the education section.

Exchanges web sites are a total waste of time. Forget getting anything-useful there.