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.
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.
