Understanding What Commodities Trading Is In Australia

Commodities are basic goods listed in the Australian exchange that can always be traded for other goods or money. Common examples of tradable commodities include gold, oil and consumables like grains or beef. So what is commodities trading? Simply put, it’s the trading of all the aforementioned goods, a practice that was prevalent long before the financials stocks and market shares even came into existence. Before jumping into understanding this concept, readers must first know what commodities and commodity markets are and how they work in Australia. 

Commodities: An Overview

Commodities that can be bought or sold are mainly categorised into four groups: 

  • Metals: Precious metals like gold, silver and platinum tops the list and still ranks as one of the most commonly sought after metals by big investors. Other metals that are commonly used for industrial applications are also listed under metal commodities. These include copper or palladium. Legally binding agreements called metal futures can also come under the category of commodities trading. 
  • Energy: Energy commodities make up for all the fuel that power Australia’s infrastructure and this includes gasoline, crude oil, natural gas and heating oil. Ethanol and uranium also make up for the names under this label, ethanol being traded as an alternative to foreign oil and uranium as a source of fuel for nuclear power plants. 
  • Agricultural: Agricultural commodities include every consumable and perishable game produce like meat, cattle, derivative products like milk, eatable like nuts and fruits. All the crops cultivated and animals grown in pastures come under agricultural commodities and can be traded in the commodity market. 

Understanding Commodity Markets

The market designated for selling, buying or trading all the commodities mentioned above is categorised as a commodity market. Globally, they are categorised as either soft commodities, which make up for agricultural products and hard commodities, which includes metals and energy commodities. Although this begs the question, why is there a need for a commodity market in Australia? Why don’t producers directly contact consumers for these products? The answer is simple, commodity markets give both the consumers of commodities as well as its producers a space to access these commodities as a marketplace. As a market, it functions in the same way the stock market does as it is centralised and seemingly liquid. Consequently, active participants can hedge, invest or speculate trends and market changes and throw money into the trades accordingly. The market functions in two major types: 

  1. Spot: Immediate delivery contracts are signed in spot markets where both parties come together to exchange commodities. 
  1. Derivative: The derivatives markets consist of forwards, options and futures. Forwards are contracts between buyers and sellers for commodities set at a specified price in the future. Futures are contracts set for predetermined prices for a commodity. Both forwards, as well as futures, make use of the spot markets as a basis for all contractual agreements. The third type of contract is called options and it deals with preset prices of commodities before the expiry of the agreement. 

Commodities Trading

So what is commodities trading? It involves all the trading practices made for all commodities and their derivatives in Australia. The trading is usually brought about through the use of contractual agreements and is mainly done by investors to diversify their portfolios and cushion the blows of inflation. By the time of maturity of the agreed contracts, buyers can take the commodities home and add them to their growing portfolio. If the contract allows, buyers can also settle for cash and the value is determined at the time the contract voids. 

Explore more

Books on Cryptocurrencies and Blockchain Technology Worth Reading

Books on Cryptocurrencies and Blockchain Technology Worth Reading

You're diving into cryptocurrencies and blockchain technology, and these books are essential. 'Mastering Bitcoin' by Andreas M. Antonopoulos offers deep technical insights on Bitcoin's...
Office Desk

How to Personalize Your Office Desk for Comfort and Efficiency

Personalizing your office desk is essential for creating a workspace that enhances both comfort and efficiency. An organized and well-designed desk can boost productivity,...

Prune Trees, Shrubs, And Flowers For Healthy Growth

Pruning is essential. It helps flowers, shrubs, and trees stay healthy and shaped. All plants need pruning at the right time. The ideal seasons...

One Click Away: Why You Should Buy Travel Insurance Online

We live in a world where convenience is given the most importance, whether it is a product or service. As the world moves towards...
Summer Survival

Summer Survival Guide: How to Stay Cool and Comfortable

With summer just around the corner, it’s safe to say that the days will become warmer as temperatures start to rise. It may seem...

How to Hire a General Contractor: Checklist and Tips

By Hovik Akopyan, General Contractor at Akopi Builders Introduction When embarking on a construction project, whether it’s a new build or a major renovation, the decision...

Cryptocurrency Security: Shielding Your Digital Fortune

Embark on a journey to fortify your digital wealth in the realm of cryptocurrencies. From the rise of digital currencies to the evolving landscape...
5 Reasons Why You Should Hire A Roofing Company 

5 Reasons Why You Should Hire A Roofing Company 

When it comes to maintaining the integrity and longevity of your home, the importance of a sturdy, well-maintained roof cannot be overstated. However, problems...