The financial market attracts a large number of people with its capabilities, it seems to them, quick, simple, with a convenient mode of high earnings. However, according to statistics, such hopes are completely unjustified, since most of them lose their money. This is due to the fact that many users take trading on the exchange seriously and treat trading like in a game.
To really make money in the financial markets, you need to undergo special preparatory training and learn how to choose trading assets. Each exchange product has its own characteristics, properties, profitability and, one might even say, “character”. What they trade in financial markets and how this happens, the reader will learn from this article.
Commodity Exchange Definition
Before plunging into the alluring world of trading, you need to understand what financial markets are and their features, and have information about the trading assets that are used on them. It is absolutely impossible to trade profitably and stably, if you do not understand what a currency, stock or commodity exchange is, as well as the principles and laws of its work. Each direction of the financial market has its own characteristics, which must be taken into account when choosing both an asset and a type of trade. For example, at Forex, currency pairs are used as an instrument, and in the stock market, securities, company shares, bonds.
By definition, a commodity exchange is a specialized platform on which financial transactions take place literally every second. By and large, this is a regularly operating wholesale market with high competitive ability, liquidity and volatility. Due to supply and demand, transactions on sale are constantly taking place on it. All operations take place according to certain rules, and commodities used as trading assets are always interchangeable products and their derivatives.
History of occurrence
In the XV century, when the first exchanges appeared, there were no separate buildings allocated for them and all transactions took place on a specially designated area. In 1409, the world's first exchange was opened in the city of Bruges. The stock trading direction appeared a little later, in the 16th century, and at the same time buildings were built for exchanges, which gradually developed in Europe. In the United States, this type of trade gained popularity only in the 19th century. This is due to the fact that it was at this time in the United States that an intensive growth in the development of capitalism began.
In the Russian state, the first commodity exchange appeared at the beginning of the 18th century at the direction of Peter I. Its existence lasted until the beginning of the 20th century, and then the revolution began and completely different priorities were set in the country due to the peculiarities of the economic policy of the USSR. However, with the development of market relations, Russian legislation was already revised and the work of exchanges was resumed.
Commodity Assets
Almost all over the world, commodity, industrial, and commodity exchanges use agricultural and extractive natural products, as well as their derivatives and contracts, in financial transactions for sale.
Types of commodities:
- Food products (sugar, potatoes, nuts, coffee products, eggs).
- Cereals (corn, wheat, rye, rice, oats).
- Oil-containing assets (sunflower seeds, flax, beans, soy).
- Wool, cotton, satin, linen, silk and other textile products.
- Food concentrates.
- Livestock products (cattle and pork, meat and livestock).
- Rubber.
- Non-ferrous metals (gold, zinc, nickel, silver) and other types.
- Forest products (fiberboard, plywood and other industrial raw materials).
- Natural resources such as oil, gas, coal and their derivatives.
- Black metals.
- Pulp and paper products.
- Colored and black ore and others.
Types of exchanges
All exchanges operate in two directions. According to historical data, initially there was no separation between them, but gradually it appeared due to the development of the world economy, the scaling of trade and technological progress. Each direction has certain properties and features, as well as a narrow specialization of commodities.
There are 2 types of exchanges:
- Universal direction.
- Specialized species.
What trade on exchanges? From the above list, you can understand that almost any product finds its seller and buyer. However, not all of them have the same trading characteristics. Some assets have greater liquidity, which means they are more in demand on exchanges, while others, on the contrary.
The largest volume of transactions takes place in a universal direction. For example, the Chicago Board of Trade or the Chicago Mercantile Exchange, where commodities are traded, ranging from various foreign currencies, lumber, precious metals, industrial and grocery goods, to sales and purchases of live animals.
Specialized exchanges have a narrower focus. They are divided into certain groups. For example, transactions on coffee products, grains and grocery goods take place at the New York Stock Exchange, and metals are bought and sold at the London Stock Exchange.
Stock trading
Specialists who make money in financial markets through speculative trading are called traders. They buy stock goods at a lower cost, and sell more expensive. The difference between buying and selling is the deal income for the trader.
Many newcomers, having seen and heard a lot of different stories about speculative trading and high earnings, want to learn how to make money on the exchange. If a person decided to devote himself to trading, then he needs to undergo basic training in order to understand the rules of exchange trading.
Speculative trading
In fact, in fact, traders do not physically buy or sell anything, but only speculate on assets, that is, on lowering and raising prices. Next will be considered an example of how to make money on the exchange.
All traders before the start of trading conduct an analytical forecast of changes in market quotes for selected assets. This is done in order to understand in which direction the price will move, and to open a position to buy or sell in the same direction. For clarity, you can consider an example of an exchange transaction.
Suppose a trader determines that the trading asset of his choice will decrease in value during the day. He places a sell order and opens an exchange transaction. If his forecast is true, then he will be able to earn a certain amount of money, which depends on the size of the position of the speculator and the value of the asset.
Financial risk
On any exchanges where speculative trading takes place, there are always risks. This is due to the fact that one can’t say with absolute certainty and predict when and where exactly market quotes will move, that is, go up or, conversely, go down. For a speculator, a precisely made forecast is a guarantee of his earnings. If the trader’s analytics is justified, only in this case he will be able to earn.
Each financial transaction occurring on the exchange is insured by a speculator with the help of a special tool, a stop-loss protective order. In the event that the forecast in the direction of the market movement is made incorrectly, then, having reached a certain level specified in the parameters of the protective order issued by the speculator, the exchange transaction will close automatically and the loss will stop. Of course, the trader will lose some of the money, but the main amount of his balance will remain. Therefore, professionals advise all beginners to trade with financial risks no more than 2% of the deposit.
Functions of commodity, stock, currency and commodity exchanges
Exchanges provide not only services for speculative transactions with which traders earn money, but also fulfill their main responsibilities and tasks:
- They are involved in pricing commodities, which then analyzes the level of supply and demand for assets.
- And also their functions include monitoring, regulation and control of the obligations of sales contracts and checking the system of settlements.
- In addition, hedging occurs on exchanges, that is, insurance and a guarantee for exchange assets.
- Additional functions include the following services: speculative trading; financing and arbitration; investing and other opportunities.
Conclusion
For activities on exchanges, a wide variety of trading assets are used, which are divided into several directions. They open up opportunities for earning not only to large commercial banks, funds and companies, but also to private investors, as well as medium and small speculators. To receive income using exchanges, you need to know its rules of work, as well as be able to evaluate and choose exchange assets.