Commodity Trade and Risk Management is the overall process of trading both physical commodities and various derivatives based on these commodities. Commodity trading poses a number of risks which can be managed with the correct tools and keen understanding of these risks.
Commodity Trade involves the trading of standardized goods on regulated exchanges. There are numerous actors actively involved in trading commodities such as producers, industrial end-users and trading companies. Through the trading activities commodity prices are discovered. The volatility of commodity prices generates risks but also opportunities for traders wanting to take advantage of price movements.
The Commodity Market is a complex industry where raw materials are traded on a regulated exchange. The products are standardized by the exchange in terms of quality and quantity per contract. The exchange offers a platform where the numerous traders can trade both the physical commodities as well as the derivatives.
When trading commodities it is critical to perform Risk Management in order to minimize risk exposure. The commodity market poses a variety of risks which can all greatly influence trade profits and therefore need to be monitored and managed. The high volatility of the market creates uncertainty about future prices and thus poses a significant threat. There are various methods for managing risk through the exchanges and their derivatives.