Global Commodity Exchanges Visited
The global economy relies on trading commodities and this process takes place across a range of commodity exchanges.
This is the nexus where traders, producers and commercial consumers effectively meet to do business.
It is the market where either spot prices (for immediate delivery) or futures contracts (delivery at a later date) are traded.
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A commodity exchange can cover a wide range of commodities or specialise in one or two areas, such as energy or precious metals or agricultural, including corn and wheat.
The method of carrying out trades has been changed in recent years.
Traditional methods such as the open outcry system – men in coloured jackets shouting prices at each other across the trading floor – is all but being replaced by global electronic trading platforms.
Such a platform means they can trade most commodities, wherever they are principally traded.
With the advance of technology, we have seen the recent merging of commodity exchanges and this consolidation is likely to continue with the growth of commodities as an asset class, and the accessibility of trading to a growing group of retail traders and investors.
In the United States the Chicago Board of Trade and Chicago Mercantile Exchange are now in effect one exchange and this is referred to as the CME.
The main commodities traded on this exchange are agricultural, including softs, energy products and precious metals.
There is a link between CME and the New York Mercantile Exchange (NYMEX) where it is possible to trade NYMEX futures contracts on the CME Comex platform.
This merging of previously distinct boundaries between exchanges is likely to continue over time given the efficiency and cost advantages arising.
The Intercontinental Exchange (ICE) is a leading global commodity exchange which provides an electronic trading system for trading futures and options.
It acquired the London-based International Petroleum Exchange in 2001, so adding the world’s leading energy exchange to its portfolio of services.
Though commodity exchanges can be truly global with the advent of electronic trading platforms, they still retain their geographical associations.
While NYMEX, CME and ICE have a wide reach with their new platforms, we still find exchanges building on their traditional strengths and association with a particular class of commodity.
Consider for example the London Metal Exchange (LME) which is regarded as the world’s premier commodity exchange for non-ferrous metals and plastics.
While the Kansai Commodities Exchange in Osaka focuses on contracts in frozen shrimps, coffee, corn, soybeans, azuki beans, and raw sugar.
With the rapid expansion of China and the resultant huge demand for natural resources, it is not surprising that there is a growing interest in commodity trading at the Shanghai Futures Exchange.
In Australia the former Sydney Futures Exchange has merged with the Australian Stock Exchange to form the Australian Securities Exchange. You can trade shares , options and futures on this combined exchange, with electricity futures and a range of wool futures contracts being most prominent. Looking ahead it is quite possible that more of the smaller commodity exchanges will be absorbed by the larger global players which use the latest electronic trading platforms.
Add to this the growth in new types of futures contracts in areas such as carbon and water and the constellation of products available on commodity exchanges will broaden.
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