Chapter 3: Types of Exchanges: Commodity Exchange

There are the following types of exchanges: stock exchanges and commodity exchanges, which depends on the subject of transactions concluded on them. They have their own specifics and certain properties. In this chapter we will consider commodity exchanges.

Commodity exchange is designed for trading in food products, raw materials and energy carriers, as well as other mass consumption goods. The subject of trade commodity exchange can use a wide range of goods, and can specialize in certain types of goods, for example, oil, grain or fur. Commodity exchanges are of great importance in international trade relations. They are used to establish the market price of goods.

Nowadays commodity exchanges remain only in some countries and their turnovers are rather low. Usually they are one of the ways of wholesale trade in local products, which is characterized by low concentration of consumption, marketing and production. The largest commodity exchanges operate in Malaysia, India and Indonesia.

Commodity exchange is defined by the legislation of the Russian Federation as an organization with the rights of a legal entity, which forms the wholesale market, regulating and organizing exchange trade, which is conducted in the form of public trading held according to certain rules in a certain place.

Many functioning commodity exchanges work in the form of a continuous auction that takes place during the working day. At this time sellers make offers and buyers submit bids. A deal is concluded when the interests of both parties coincide.

Money for certain goods is paid at the same time as they are delivered. But, more and more often at commodity exchanges deals are made on deferred delivery terms, when goods are bought at the price set at the time of the transaction, but they are delivered after a certain time. This is futures trading. In the modern world, when market relations are developing with rapid speed, commodity exchanges have not lost their importance, their institution has been transformed into a market of rights to goods.

Here we have familiarized ourselves with the concept of the exchange and learned about the two types of exchanges, their features and main functions. The rest of the concepts that we will get acquainted with in the future will be related only to stock exchanges as more widespread and convenient. In the next chapter we will look at the largest participants of the stock exchange.