A commodity market is a marketplace where the buying, selling and trading of raw materials takes place. Commodities generally trade in either a spot market or derivatives market.
Spot markets are physical markets, where buyers and sellers exchange physical commodities for immediate delivery. Derivatives markets are where commodities are bought and sold using derivative contracts.
Most investors are likely to participate in the derivatives market, as taking part in the physical exchange of commodities is inconvenient – unless they own a farm or run a manufacturing business.
On derivative markets, investors typically trade in futures contracts without intending to actually take ownership of the underlying commodity, trying to profit from price volatility instead.
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