Journal of Stock & Forex Trading
Open Access

The Impact of Commodity on Stock Market

Suh Wang^{* *}Correspondence: Suh Wang, Department of Computer Science, University of Jaén, Jaén, Spain, Email:

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Description

Commodity markets have been an integral part of human civilization for centuries. From the early days of barter trade to the sophisticated futures trading of today, the buying and selling of raw materials and products has been a crucial aspect of our economic systems. In this article, we will provide an overview of the commodity market, its characteristics, and its role in the global economy. Commodities are raw materials or products that are used in manufacturing, construction, and consumption. These products can be traded on commodity markets, and their prices are determined by supply and demand factors. Examples of commodities include energy products like crude oil and natural gas, metals like gold and silver, agricultural products like corn and wheat, and livestock like cattle and hogs.

Commodity markets

Commodity markets are where commodities are bought and sold. These markets can be physical or virtual. Physical commodity markets involve the actual physical exchange of the commodity, such as in the case of agricultural products like wheat or livestock. In contrast, virtual commodity markets are electronic marketplaces where buyers and sellers can trade commodities without ever physically exchanging the underlying product. The commodities market can be divided into two main categories: spot markets and futures markets. Spot markets involve the immediate delivery of the commodity upon purchase. Futures markets, on the other hand, involve contracts for future delivery of the commodity at a predetermined price. Futures markets are used to hedge against price volatility and to speculate on future price movements [1-5].

Factors that affect commodity prices

Commodity prices are influenced by a variety of factors, including supply and demand, geopolitical events, weather patterns, and global economic conditions. For example, if there is a drought in a major agricultural region, the supply of crops like wheat and corn may be reduced, leading to higher prices. Similarly, if there is political instability in an oil-producing region, the supply of crude oil may be disrupted, leading to higher prices [6-10].

Speculators and hedgers

The commodity market is comprised of two types of traders: speculators and hedgers. Speculators are traders who seek to profit from price movements in the commodity markets. They do not have a direct interest in the underlying commodity but instead aim to profit from changes in its price. Hedgers, on the other hand, use the futures market to manage their price risk. They may be producers or consumers of the underlying commodity and use futures contracts to lock in a price for their future transactions [11,12].

Role of commodity markets in the global economy

The commodity market plays a vital role in the global economy. It provides a platform for producers and consumers to manage their price risk, allowing them to focus on their core business operations. It also helps to allocate resources efficiently by providing price signals that guide producers and consumers in their decision-making processes. Commodity markets also serve as a barometer of global economic conditions. For example, if commodity prices are rising, it may be an indication of strong global demand and a growing economy. Similarly, if commodity prices are falling, it may be a sign of weaker demand and a slowing economy [13].

Risks and challenges

Like any financial market, the commodity market is subject to risks and challenges. One of the main risks is price volatility. Commodity prices can be highly volatile, making it difficult for producers and consumers to plan and budget for their operations. This volatility can also create opportunities for speculators to profit from price movements, which can lead to market distortions. Another challenge is the potential for market manipulation [14,15]. The commodity market has been prone to manipulation in the past, with traders using their positions to influence prices in their favour. Regulators have implemented measures to reduce the risk of manipulation, but it remains a concern in the market.

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