Commodity trading has existed from time immemorial. Physical products like food items, precious metals, minerals ore, crude oil or even electricity supply do comprise the list of some of the commodities that are traded in commodity exchanges today. These commodities are often traded just like stocks in a stocks exchange. The existence of a commodity market is contingent to standard agreement between the trading partners at the exchange on the types, sizes or shape of commodities to be exchanged.
Commodity trading principally embodies three mean of transactional formats. The first is what is known as spot trading in which delivery of commodities is instantly made at the completion of transactional agreement or a relatively short period of time is allowed for delivery to be made as a consequence of logistic details. The second type of commodity trading is known as forward contract which is an agreement between two trading parties to exchange commodities at some future date at a priced fixed in the present. The other variation to forward contract is the futures contracts which are normally transacted through futures exchanges.
The last type of commodity trading is hedging. Hedging is a practice where a trader insures against poor future delivery of a particular commodity by securing a forward contract for the same commodity. This covers for future profits in the present.