The market place where raw materials, agricultural products, and related derivatives are traded across in the global market is known as commodity market. Commodities are traded via the proceeds decided by the regulated commodities exchanges by means of standardized contracts.

Commodities trading are based on:

• Spot prices
• Forwards
• Futures
• Options on the futures
• Hedging
• Delivery and condition guarantees
• Standardization

Most of the commodities trading is based on a futures contract to obtain things like wheat, corn, cotton etcetera at a certain period in the year. For instance, a futures contract is signed up with a farmer on the commodity he is yet to harvest after months for an agreed rate. In commodities trading:

• The farmer is protected from price decline.
• The buyer is protected from price rise at the time of the harvest.

Similar to central banks for currency trading, there are commodities exchanges in various countries.

Commodities trading are a mix of relationship between basic commodity money and complex instruments given in the commodity markets.

The history of commodity trading dates back to the barter days when cattle, shells, and animals were used as commodity money; however, the value of the commodities involved were not predictable always, since the commodity value of living things were always doubtful. The health conditions of the poultry or animals traded were not a guarantee.

People sought standard commodity money. Futures contracts originally came in to existence when the number of animals owed were printed in clay tablets; however, this kind of money was not backed by national or state bank guarantee, but it was better than just an acknowledgement of debt.

Trust, and past reputation of the seller became further requirements giving birth to credit, yet another form of commodity money; however, credit as commodity money was primitive until modern days.

With a number of influential factors like climate, demurrage, theft, politics, influence of war etcetera being perceived threats, the commodities markets were left to open trading. Those of whom who were able to handle such concerns smartly became the people who managed and mediated trade and commerce.

The commodities trading consist of:

• Physical trading
• Derivatives trading

Year 2008 witnessed a sharp increase in all the commodities with uncontrolled speculation in forward markets. Though commodities have an expected return rate, the commodities market is not yet absolutely risk free.

The regulation of the commodity markets is done by the Commodity Trading Commissions of each country.

The requirements of the industrial market are a lot different from the consumer market. Also, the types of contracts and the grades tend to differ between countries. The vast diversity in contract processes and quality assessment between countries has led to the many different types of units, terms, and futures contracts, which have eventually turned out to be a complex range of financial instruments.

There are several representations in the commodity markets, than just a one-to-one representative pattern, which can be anything from price insurance to basic speculative trading.