The volume of trade in commodities has grown steadily over the years, largely due to the increase in world trade and in population.

Essentially the commodities market exists to service importers and exporters of raw materials, but they also allow the private investor to take a view on the movement in prices. Historically, the first official commodity exchange was set up in 1850 in Chicago, which was the centre of the rapidly growing American grain trade.

Not long after, Liverpool established an exchange. A vital ingredient of this and all present commodity exchanges around the world is that they deal not only in the physical goods, which can be bought and sold for immediate delivery, but in futures contracts.

These contracts, which form a commitment to buy or sell a certain amount of goods in a certain time, can themselves be traded on the market place.

The main users of the commodity markets are producers (such as the Third World countries rich in minerals and crops), merchants (who buy and sell these commodities) and consumers (such as the manufacturing companies, who produce finished goods like cars, tinned foods and so on). One feature of commodities futures trading is the ability to trade on margin, i.

e. one only has to deposit 10% of the contract value with the broker. To take a position in these futures markets, whether for hedging purposes or for profit, usually involves opening an account with a commodity broker, who executes the order on the relevant commodity exchange.

The client is normally then sent a contract detailing the quantity, delivery date, and price at which the commodity has been bought or sold.

From that moment the client has an open position which - unless he wants. to take possession of the physical commodity - must be closed later. If the price moves up, the client will make a profit, in which case he can sell and receive a cheque with commission deducted.

If the price moves against the client, then the opening position will be showing a loss. Normally, if this opening position loss has eroded more than half of the original 10% deposit, it is likely that the broker will request that either the client close the

Contract size Price quoted in Minimum price fluctuation

50 Metric Tonnes per tonne 20 cents 0

50 Metric Tonnes per tonne 20 cents 0

5 Metric Tonnes £1 per tonne £1.100 None

10 Metric Tonnes £1 per tonne £1.100 0

20 Metric Tonnes £1 per tonne £10.10 £15

100 Metric Tonnes £1 per tonne £10.05

40 Metric Tonnes £1 per tonne £10.10 £115

10 Metric Tonnes £1 per tonne £10.10 £115

50 pig carcasses pence per kilo £10.01 £10.10

50 pig carcasses pence per kilo £10.01 £10.10

3,000 kilos dead weight pence per kilo £10.01 £10.10

10,000 troy ounces pence/troy oz £10.10 No limit

25 Metric Tonnes £1 per tonne £10.50 No limit

25 Metric Tonnes £1 per tonne £10.25 No limit

25 Metric Tonnes £1 per tonne £10.25 No limit

25 Metric Tonnes £1 per tonne £10.50 No limit

6 Metric Tonnes £1 per tonne £11 No limit

100 Tonnes in bulk per tonne 25 cents 0

1,000 barrels per barrel 1 cent

Value of each lot = average over 5 working days x 0 Value of each lot = average over 5 working days x 0

position (thus eliminating the possibility of any further loss) or that he send further funds to maintain the original 10% deposit. This is known as the 'margin call'.
CCMG - 2013