commodity market

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A market in which commodities are traded. The main terminal markets in commodities are in London, New York, and Chicago, but in some commodities there are markets in the country of origin. Some commodities are dealt with at auctions (e.g. tea), each lot being sold having been examined by dealers, but most dealers deal with goods that have been classified according to established quality standards. In these commodities both actuals and futures (see futures contract) are traded on commodity exchanges, in which dealers are represented by commodity brokers. Many commodity exchanges offer option dealing in futures, and settlement of differences on futures through a clearing house. As commodity prices fluctuate widely, commodity exchanges provide users and producers with hedging facilities with outside speculators and investors helping to make an active market, although amateurs are advised not to gamble on commodity exchanges.

The fluctuations in commodity prices have caused considerable problems in developing countries, from which many commodities originate, as they are often important sources of foreign currency, upon which the economic welfare of the country depends. Various measures have been used to restrict price fluctuations but none have been completely successful. See also International Petroleum Exchange; London Commodity Exchange; London International Financial Futures and Options Exchange; London Metal Exchange.

Subjects: Financial Institutions and Services.

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