A Keynote On Natural Resource Trading
Natural resources are always categorized as commodities and its requirement is mostly uniform in nature. They can be Ethereum code traded for needs and can be made liable to a unified form of pricing. The uneven nature of global distribution of these natural resources and the gradual accumulation of market power drives the idea of alternative trading modes to rather reduce the associated market risks such as interruptions in the supply of critical natural resource inputs.
Commodity Exchanges and Depending Factors
- A commodity is generally termed as a naturally existing product that can be transferred among the consumers and producers under certain pre-fixed conditions. These include the examples of fuels, metals, minerals and even forestry products. Trading of these products are well organized under centralized markets and can be easily verified for their quality.
Trading of these products usually occurs either digitally or verbally between buyers and sellers who are anonymous to each other. Further, the trading is conducted on the spot by means of futures contract where particular arrangements are made to deliver these products via pipelines or tankers. Energy producers, related firms, regional set up of distributors and consumers are the major involved participants here.
In this type of futures trading, they allow selling these products at some point in future but at a price that is fixed now. This can alleviate any chances of price hiking or price uncertainty terms. The period of such trading can vary from months to years respectively. Moreover, the settlement occurs as cash and never result in physical exchange if the period remains exhausted.
- Evolution of modern commodity markets: This can be traced back to the beginning of agricultural mechanization and the industrial revolution. Henceforth, real markets were made on the spot to conduct the business of trade which was previously referred to the barter system.
This development reduced the transaction costs and helped consumers to find a ready market which gave life to forward delivery options and started trading collect cash in return.
- About the geographical distribution of commodity: There has been a splendid rise in the establishment of commodity exchanges all over the world.
- Chief elemental functions:
- Such commodity markets indicate the natural reference points simplifying the process of determining market prices as they only enable market supply of these commodities.
- Maintains liquidity as these exchanges create the global pool into which exporters sell their commodities.
- With the efficient locking of commodity trading prices via future contract, the participants can hedge against unfavorable price variations that might occur before delivery date.