Each of us has repeatedly heard the concept of "stock exchange", perhaps someone even knows its definition, but in the economy there are also commodity exchanges. Moreover, they are not less common, and maybe more than stock ones. Let's figure it out together what it is.
Definition
The concept of “commodity exchange” has the following definition: a union of members, which are organizations of a non-profit nature (not making profit the main goal), capable of providing normal material conditions for the purchase and sale of various types of products on the free market through public trading.
The main characteristic of such an association is the absolute equality of both customers and exchange members.
Tasks
The activity of commodity exchanges does not set as the main goal the supply of raw materials, currency or capital to a certain economy. The goal-setting is based on streamlining, proper organization, bringing to a single structure of various markets (foreign exchange, capital, raw materials).
Main characteristics
It is important to understand that commodity exchanges buy and sell contracts for the supply of goods, not the products themselves. First of all, they sell contracts for goods that can be sold in bulk (otherwise they are called standardized goods).
Commodity exchanges at the core of their functionality put the task of identifying basic prices formed by the relationship of supply and demand.
Absolutely all such organizations have the necessary degree of economic sovereignty, which means that they function without depending in any way on one another. A striking manifestation of this characteristic of commodity exchanges is the fact that the contract sizes for the same type of goods and many other contractual provisions are different on different exchanges (despite the fact that many goods are bought and sold on several, but there are some, which can be purchased only on one).
If we analyze the functioning in the conditions of a developed market system of economic relations, we can conclude that in countries of a progressive market these are in most cases non-profit associations. At the same time, commodity exchanges are exempt from paying corporate tax, mandatory for all organizations, imposed on the income of associations. Some types of income are nevertheless derived, namely, profits from the provision of various services to members of this exchange and other organizations, share contributions and receipts from the founders, deductions from those organizations that form the membership. That is, it is quite possible to say that a commodity exchange is a self-sustaining association.
Functional
In relation to current living conditions, the fundamental functions of a commodity exchange include the following:
- Study of the standards established for the products being sold.
- Development of a package of standard standard contacts applicable to transactions on this exchange.
- Approval of price quotes.
- Legal settlement of various disputes between the parties arising within this exchange.
- Active activity in the field of information.
- Establishing a balance between supply and demand through the open implementation of the processes of buying and selling.
- Strict streamlining and bringing to a uniform market system not only of commodity, but also of raw materials.
- Actively stimulate progressive market development.
- Exchange as an economic indicator.
Kinds
Currently, there are two main types: universal and specialized.
Universal Commodity Exchange works with a wide variety of products. For example, the Tokyo Stock Exchange refers to this type, on which transactions are made on platinum, silver, gold, rubber, woolen and cotton yarn. Syaganskaya, Sydney, Chicago commodity exchanges also have universal status. Within this category, they were formed in Russia.
A specialized commodity exchange sells one type of product. The names of such associations speak for themselves (for example, the London Metal Exchange).
Quotation
An exchange quotation is the fixing of prices established by contracts and the introduction of a contractual standard price for a certain period of time on exchange transactions (most often, one day is chosen as a measure of duration). The quote is a certain guideline that acts directly during the conclusion of transactions both on the exchange and beyond.
In connection with the quote, we mentioned such a thing as "typical (typical) price." It is formed by the quotation commission and introduced by it taking into account the results of the auction. Such a price, no doubt, seems to be the most probable, but deviations are possible due to some random external influences. The typical price is otherwise called the price of the prevailing sale. It can also be taken as an average value in a large number of transactions.
Exchange quotation, of course, is not taken from the air. The source material during its formation is a factual basis on the topic of counterparty transactions, and in particular information on prices at which bidders on the commodity exchange would like and have the opportunity to purchase or sell this type of product.
Quoted Price Value
Quoted prices can be safely called objective, or maybe even the main indicator of the current state of the market. This is due to the fact that there is a serious concentration of supply and demand in the exchange process. Along with this, a typical quotation price is a factor of further transformations in the structure of production.
Stock quotes today are gradually gaining ever-increasing importance. So, on the Chicago stock exchange with a set frequency, meetings of brokers are held to determine food prices. Moreover, the price values confirmed there are actually set throughout the country.
Operations
The clearing operation is based on the fact that in the course of transactions made on the exchange, participants may have debt obligations in relation to each other. It is clear that all debts must be repaid. In order to ensure this, at the end of trading on the exchange, the clearing house analyzes the transactions completed in order to establish the net margin (the difference between the final price and the cost price) for each of the debtors.
- Forwards and futures contracts. This concept means the agreement of the parties to sell or purchase in the future at a pre-set price of a product. It should be remembered that calculations for any contract are made only at the time of its final completion.
- Hedging. If not the main one, then absolutely exactly one of the main functions of the futures market is the option of the transaction, when the risk is transferred from those who want to avoid it (such participants are called hedgers) to those who are ready to accept this risk (participants are “speculators”). Actually, this process is hedging. Its implementation is facilitated by the high liquidity of the market and the standardization of contracts on it. The liquidity property enables the sale of goods at a strictly defined price, regardless of its future changes. Due to standardization of contracts, there is no need to check the other side for reliability.
- Options. When buying and selling under futures contracts, the possible risk can sometimes exceed the resources available to the speculator. The option is set in order to reduce risks. It gives the client the full right, but not the obligation, to buy and sell futures. That is, the contract can be completely redeemed only if this operation brings real profit. In the event that the buyer refuses to complete the transaction, the seller simply receives from him the price of risk, which is a predefined premium.
- Speculation. The interest of the hedger is market stability, and the speculator - fluctuations of the same kind. The speculator has more freedom for market maneuver due to the fact that the margin is small. He is not interested in any particular product being accepted (implemented). Both professional professionals (acting on their own initiative and striving to profit directly from the trading process) and specifying orders for brokers (intermediaries between buyers and sellers) private individuals are engaged in speculation.
Russian exchanges
The first exchanges opened on the territory of the Russian Federation were the Moscow Commodity Exchange, the Russian Commodity and Raw Materials Exchange, organized in 1990. For a long time they were absolute leaders in the market of our country. Today, the international St. Petersburg Mercantile Exchange is gradually taking the lead. And this is not surprising, because it is on it that the Russian oil market is more concentrated. Among other things, the St. Petersburg Commodity Exchange is equipped with sectors for trading resources such as natural gas and forest. Within its framework, sections of building materials, chemical products and many others function. SPbMTB is a typical and striking example of a universal commodity exchange.
The main exchange of Belarus
It is interesting that such a large international economic agent appeared precisely in Belarus. It is officially called the Belarusian Universal Commodity Exchange. Currently, it is she who has a real positive impact on the economy of her country. In addition, she is a fairly large representative of international commodity exchanges. BUTB is a special electronic trading platform, one of the largest commodity exchanges in all of Eastern Europe. Among other things, this exchange is a member of the Association of Futures Markets and the International Association of Exchanges of the CIS countries.
The main function of the Belarusian Commodity Exchange is the provision of comprehensive assistance in the sale of products for export in relation to enterprises of the Republic of Belarus, and at the same time, assistance in accessing foreign organizations to the Belarusian market.
The main goal of the BUCE’s activity is to establish a more efficient commodity circulation in the interaction of Belarusian and foreign companies, and as a result, to establish partnership, truly friendly relations between the states. Creating a decent image rating of the country is also included in the list of tasks of the Belarusian Commodity Exchange.
BUCE conducts tenders in such thematic areas as agriculture, industrial and consumer goods, metalworking, and forest products. Recently, transactions on the commodity exchange in electronic format have been actively conducted.