Segments in Commodity Markets
There are various segments in commodity markets. Over-the-counter means that there is no formal structure of trading and parties trade on the basis of bilateral understanding. In terms of commodity trading, OTC represents spot trading of commodities. Since the structure is not formal, it is also referred as ‘customized market”. Almost all the trading that takes place over in these markets is delivery based. It is entirely unregulated with respect to disclosure of information between the parties, therefore, the trades that take place are subject to counter-party risk. Like an ordinary contract each counter-party relies on the other side to fulfil their obligation. Exchange-traded market also known as derivatives market is the place where commodities are traded over the exchange. It is standardised in nature and decently regulated. An exchange acts as an intermediary to all commodity transactions, and takes initial margin from both sides of the trade to act as a guarantee. All the commodity exchanges are overseen by Forward Market Commission. It is an important part of the commondity market.
It includes the following:
- OTC Markets
- Exchange Traded Commodities
- Spot Markets
- Difference between Spot Vs Forward Transaction
- Exchange traded VS OTC
