Commodity exchanges: types and functions. Trading on the commodity exchange

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Each of us has heard the concept of "stock exchange" more than once, perhaps someone even knows its definition, but there are also commodity exchanges in the economy. Moreover, they are no less common, and maybe more than stock ones. Let's figure out together what it is.

Definition

The concept of "commodity exchange" has the following definition: an association of members, which are organizations of a non-profit nature (not setting the main goal of making a profit), capable of providing normal material conditions for the purchase and sale of various types of products on the free market through public auction.

The main characteristic of such an association is the absolute equality of both clients and members of the exchange.

Tasks

The activity of commodity exchanges is not the main goal of supplying raw materials, currency or capital of some economy. Goal-setting is based on ordering, proper organization, bringing to a single structure of various markets (foreign exchange, capital, raw materials).

Basicspecifications

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 base their functionality on the task of identifying basic prices formed by the relationship of supply and demand.

Absolutely all such organizations have economic sovereignty to the necessary extent, 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 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 at once on several, at the same time there are such which can only be purchased at one of them).

If we analyze the functioning in the conditions of a developed market system of economic relations, we can conclude that in the countries of a progressive market these are in most cases non-profit associations. At the same time, commodity exchanges are exempted from paying corporate tax, which is mandatory for all organizations, and is imposed on the income of associations. Some types of income are nevertheless extracted, namely, profit from the provision of various kinds of services to members of this exchange and other organizations, share contributions and proceeds from the founders, deductions from those organizations that form membership. That is quiteone can say that the commodity exchange is a self-sustaining association.

Functional

In relation to the current conditions of life, the fundamental functions of the commodity exchange include the following:

• Development of standards set for products sold.
• Developing a package of standard typical contacts applicable to transactions on this exchange.
• Approval of price quotation.
• Legal settlement of various disputes of the parties arising within this exchange.
• Active in the field of information.
• Establishing a balance between supply and demand through the open implementation of buying and selling processes.
• Strict ordering and bringing to a uniform system of the market not only commodity, but also raw materials.
• Active promotion of progressive market development.
• Exchange as an economic indicator.

Views

Currently, there are two main types: universal and specialized.

Universal Commodity Exchange works with a variety of products. For example, this type includes the Tokyo Stock Exchange, where transactions are made in platinum, silver, gold, rubber, woolen and cotton yarn. Syagankaya, Sydney, Chicago commodity exchanges also have the status of universal. Within this category, they were formed in Russia as well.

Specialized commodity exchange sells one type of product. The names of such associations speak for themselves (for example, the London Stock Exchangemetals).

Quote

Exchange quotation is the fixation of prices established by contracts and the introduction of a contractual standard price for a certain time period for exchange transactions (most often one day is chosen as a measure of duration). The quote is a kind of reference point that acts directly during the conclusion of transactions both on the stock exchange and beyond.

In connection with the quotation, we mentioned such a thing as "typical (standard) price". It is formed by the quotation commission and introduced by it, taking into account the results of trading. 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 also known as the prevailing selling price. It can also be taken as an average value in conditions of a large number of transactions.

A stock quote, of course, is not taken out of thin air. The source material for its formation is the factual basis on the topic of counterparty transactions, and in particular information about the prices at which bidders on the commodity exchange would like and have the opportunity to purchase or sell this type of product.

Value of quoted price

Quoted prices can be safely called an objective, and maybe even the main indicator of the state of the market at the moment. This is due to the fact that in the exchange process there is a serious concentration of supply and demand. Along with this, the typical quotation price is a factor in further transformations in the structureproduction.

The stock quote today is gradually acquiring ever-increasing importance. So, on the Chicago Stock Exchange, meetings of brokers are held at regular intervals to determine prices for food products. Moreover, the prices 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, the 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 completed transactions in order to establish a net margin (the difference between the final price and cost) for each of the debtors.

• Forward and futures contracts. This concept means the agreement of the parties to sell or purchase in the future at a predetermined price of a product. It should be remembered that settlements under any contract are made only at the time of its final completion.
• Hedging. If not the main, then definitely one of the main functions of the futures market is a transaction option when the risk is transferred from those who wish to avoid it (such participants are called hedgers) to those who are ready to accept this risk (participants - "speculators"). Actually, this process is hedging. Its implementation is facilitated by the high liquidity of the market and the standardization of contracts on it. Liquidity propertymakes it possible to sell goods at a strictly defined price, regardless of its future changes. Due to the standardization of contracts, the need to check the opposite side for reliability disappears.
• 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 redeemed only if this operation will bring 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 predetermined premium.
• Speculation. The hedger's interest is market stability, and the speculator's interest is 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). Speculation is practiced by both professional traders (acting on their own initiative and seeking to profit directly from the trading process itself), and individuals who determine orders for brokers (intermediaries between buyers and sellers).

Russian stock exchanges

The first exchanges opened on the territory of the Russian Federation were organized in 1990 by the Moscow Commodity Exchange, the Russian Commodity Exchange. For a long time they were absolute leaders in the market of our country. TodayGradually, the leadership is taken by the international St. Petersburg Commodity and Raw Materials Exchange. And this is not surprising, because it is on it that the oil market of Russia is concentrated to a greater extent. Among other things, the St. Petersburg Commodity and Raw Materials Exchange is equipped with trading sectors for such resources as natural gas and timber. Within its framework there are sections of building materials, chemical products and many others. SPbMTB is a typical and striking example of a universal commodity exchange.

Main stock exchange of Belarus

It is interesting that such a major international economic agent appeared 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, it is a fairly large representative of international commodity exchanges. BUCE is a special electronic trading platform, one of the largest commodity exchanges in 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 to provide 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 entering the market of Belarus to foreign organizations.

The main goal of the BUCE is to establish a more efficient commodity turnover in the interaction of Belarusian and foreign companies, and as a resultaffirmation of partnership, truly friendly relations between states. Creating a worthy image rating of the country is also on the list of tasks of the Belarusian Commodity Exchange.

BUCE conducts auctions in such thematic areas as agriculture, industrial and consumer goods, metalworking, forest products. Recently, transactions have been actively carried out on the commodity exchange in electronic format.