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What Do Commodity Traders Do?

Commodity traders must have good analytical skills and knowledge of a particular industry.
Commodity traders buy and sell raw materials and agricultural products.
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  • Written By: Samantha G. Dias
  • Edited By: Lucy Oppenheimer
  • Last Modified Date: 09 November 2014
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Modern commodity traders are responsible for arranging the purchase or sale of various commodities on regulated exchanges. They usually work in fast-paced and loud environments. Most of their time is spent on the telephone negotiating important trades with other parties while simultaneously tracking price trends and market developments on their computers. Traders often work under stressful conditions, making very high value trades, often on the spot.

A commodity is any raw material or agricultural product that can be bought and sold. Examples of commodities include gold, coffee, natural gas, and electricity. Essentially, commodity trading involves the buying and selling of both direct and derivative products through standardized contracts. More complex services and financial instruments such as stocks, bonds, and currencies are traded on their own markets independent of the commodities market.

Although the day-to-day tasks of commodity traders differ considerably depending on the industry, all must work with brokers on a daily basis to meet their purchasing and sales needs — ideally at the most optimal costs possible — and to mitigate or hedge against risks of price volatility. They also regularly stipulate delivery, condition, and other settlement guarantee details. Traders are sometimes involved in spot trading, which refers to trades that have a delivery that takes place immediately or almost immediately. They also frequently agree to forward or futures trading arrangements in which delivery is delayed and the price is fixed.

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Commodity trading requires top-notch analytical, interpersonal, and negotiation skills. While a bachelor’s degree in business, economics, or finance is usually encouraged, it is generally considered more important that traders demonstrate self-confidence, ambition, and extensive knowledge of a particular industry. A clean criminal record and strong credit history are also significant considerations in this field because large amounts of money are entrusted to a commodity trader every day. Turnover is extremely high in this profession, and many individuals who work in entry-level jobs quit because of underperformance. Commodity trading can be quite lucrative, and competition for such employment is fierce.

The modern commodity market originated during the 19th century in the United States from the explosive growth in trade of basic agricultural items among farmers. This American agricultural trading concept evolved from earlier global commodity trading of precious metals and spices by the ancient Greeks and Romans. It is believed that members of the ancient Sumerian civilization traded valuable commodities like animals and seashells using tablets somewhat similar to today’s futures contracts.

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SarahSon
Post 5

My uncle is a farmer and he closely watches the commodities market. The price of corn and beans is critical to his livelihood. I find it fascinating to read about how the commodities market started.

Technology has played a big role in how people trade commodities today, but the concept is still the same. Much of it is based on supply and demand and factors that nobody has any control over. I think that is one reason people consider trading the commodities so risky.

julies
Post 4

About 10 years ago I had a broker tell me that I should buy some gold so I followed his advice. I am kicking myself that I didn't hold on to it longer. After I bought the gold it started going down and I was afraid I was going to lose all my money so sold it for a loss.

It almost makes me sick to think about how much that gold would be worth now. This was not actual gold bars but I invested in this gold through the commodities market.

I know I would never want to have a commodities trader job. I have a hard enough time keeping track of my own investments and would not want the huge responsibility they have on their shoulders.

LisaLou
Post 3

About 15 years ago I thought I would try some derivatives trading. I started out with $1000 and hoped that I would be able to double that within a short period of time.

I remember buying some corn and sugar and neither of them worked out very well. I think before 3 months was over I had lost all of my money and haven't touched it since.

myharley
Post 2

I have done some stock option trading, but commodities is something that I have not tried. I know that options are risky, but have heard that trading commodities is even more so.

The prices of the commodities can change so drastically over night that I think it would be very hard to continually make a profit at it.

You can trade commodities online without being an actual broker, but there is still risk involved. I think that being an actual commodity trader would be one of the most stressful jobs there is, and I can see why there is such high turnover.

cafe41
Post 1

I know that there are a lot of trading charts that note that the price of gold is going through the roof because people tend to buy gold when there is an unstable economy, but I wonder what makes the commodity prices for something like gold go down.

I feel like I should be buying gold because everyone else is, but I really don’t understand how to trade commodities. I know that you can buy gold bars and even certificate, but I don’t know what the advantages are of each. I should probably go to a commodity broker, because it all seems so confusing.

I am just afraid that if I do buy gold, that the prices will plummet because historically gold has not been a good investment.

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