Commodity traders are expected to have a proof of past performance either as a broker or as the direct seller to enable them to secure commodity trade finance.
Commodities are not necessarily readily available where the demand lies.
Cocoa for example, used by Swiss chocolate manufacturers, is grown only under low margin commodity business plan Tropics, in Africa, South America and increasingly in South-East Asia. The role of the commodity trader is therefore to bring the supply of cocoa in Africa and the demand for it in Europe together.
They do so by organizing the commodity supply chain between places of supply and places of demand and managing the attendant risks. Finally, traders also play an important role in processing raw materials.
|Low Profit Margin||This empowers you to drive the standardization of processes and procedures across the whole organization.|
|The 7 Factors to Consider When Pricing Your Startup's Product • Tomasz Tunguz||Every time you open an application there is a temporary image of the same application being stored in the computer.|
|Subscribe through E-mail||A near-tripling in volumes of its benchmark corn future in saw the contract leapfrog the DCE soy complex to become the single-largest product, with the 65m traded, trailing only Nymex WTI Crude in the global commodity rankings.|
|STSA :: What is Commodity Trading?||A differentiation strategy is key to building your competitive advantage. Use an example marketing plan to build your marketing mix product program.|
As such, commodity traders are transformers: Traders do so by organizing the shipment of commodities from A to B and managing the attendant risks: Just as crude oil requires refining and blending in order to be suitable for modern vehicles, soybeans for example are crushed to extract the useful vegetable oil and the meal that can be fed to livestock.
The fundamental concepts of backwardation and contango Commodity traders pay great attention to the price curve. Significant differences in price levels over different time spans can offer physical traders arbitrage opportunities.
Two particular configurations stand out: Depending on the situation, traders will have to adopt different strategies. Not only do they have to buy financial instruments to hedge against adverse price variations that could wipe out margins or worse, but they can also adapt their operations to seize profit opportunities, for example by storing crude oil if the contango is sufficient to offset storage costs over the period.
Backwardation Backwardation, or normal backwardation, describes a situation in which the spot or cash price of a commodity is higher than the forward price, i.
In many cases, the development of a backwardation is associated with supply shortage, for example if there is a disruption in the supply chain, such as unplanned refinery closures for oil products in a tight market.
Price differentials for perishable goods between near and far delivery are typically in normal backwardation. Contango Contango is the opposite of backwardation and describes a situation in which the future price of a commodity is higher than its current spot price.
A contango is normal for a non-perishable commodity that has a cost of carry e. Technical vs fundamental analysis Commodity traders -just like any other financial trader- rely on two different approaches when it comes to taking positions in a particular market. Given that Swiss commodity trading companies focus on physical trading and therefore have longer time horizons than "paper" traders, fundamental analysis plays a particularly important role and requires the fundamental analyst to know his particular market intimately.
In practice however, many market players use technical analysis in conjunction with fundamental analysis to determine their trading strategy, especially when trading on their own accounts. Fundamental analysis is a method of forecasting the future price movements of a commodity based on economic, political, environmental and other relevant factors that will affect the basic supply and demand of whatever underlies the commodity or financial instrument.
Technical analysis is a method of predicting short term price movements and future market trends by studying charts of past market action which take into account commodity price, trading volume and, where applicable, open interest.
This step often requires commodity traders to have agents in the areas of production, particularly in the case of rare commodities or speciality products such as coffee or cocoa.
Purchase and sale operations usually involve financing the transactions, organizing the transport and managing the associated risks.
Transport and shipping Typically by ship: Ships can be chartered or shipping can be done using container lines. Storage and market structure Traders transform commodities in time by storing them — purchasing them now and keeping them for future sale or delivery. Therefore they own or operate storage facilities, tanks and the like, sometimes going as far as chartering ships for floating storage.
This is determined by market structure: Importantly, no single trader is ever capable of storing a substantive share of the deliverable supply and so market manipulations are nearly impossible.
Processing Traders can transform commodities in form by processing them: To this end, traders employ inspection companies which assess and test cargos at ports, for example to determine compliance with phytosanitary standards.
In parallel, certification organisations are increasingly called upon to verify that commodities comply with e. Trade financing Traders are usually highly leveraged as a result of the low margin and high volume nature of the business and often rely on banks to provide the funding necessary to strike deals.
Given the specificities of the various commodity markets and their different risk profiles, trade finance specialists and traders tend to work closely together.Find out why Cannon Trading Co.
is the first choice for many commodity traders for price, service, technology, and added value, in their pursuit of optimized futures trading solutions. We will match or beat any competitor’s commission rates, and always provide unbeatable service Call us + Opportunity and Risk in Futures Trading an Educational Guide to trading Futures and.
Read detailed daily, weekly, monthly & special commodity research reports by our experts for free. Visit today for independent commodity research!
If you’re an active trader looking to try your hand at beating the market, you probably have a good idea of what you want in a brokerage: low costs, premium research, innovative strategy tools. Tips for Calculating Your Gross Margin If it feels like ages since you took Accounting , here's a detailed refresher on how understanding gross margins can help you make the right business.
Margin is the difference between a product's sales price and the business’s cost of acquiring and maintaining the product prior to sale. Without having an adequate gross profit margin, a. Effective Sales Incentive Plans QUARTER 2, commodity business, where there is little product differentiation, a salesperson’s personality may be the It takes pricing into account and discourages low margin sales.
Some companies try to focus the sales force on .