Commodity PricesCommodity financial terms are defined as a physical substance, such as food, grains, metals and foods, that is interchangeable with others products of the same type and which investors generally buy or sell. through future contracts. Or more generally, a product that trades on a commodities exchange; this would also include foreign currencies and financial instruments and indices. When we talk about commodities, we can refer to two types of this aspect of finance. A cash commodity or real commodity is an actual physical commodity that is delivered at the end of a “contract.” This is the least used commodity. (Investor Glossary) The most predominant type of commodity used is commodity futures. Futures markets are described as continuous auction markets and exchanges providing the latest supply and demand information regarding individual products, financial instruments and currencies. Futures exchanges are where buyers and sellers of a growing list of commodities, financial instruments and currencies come together to trade. The primary objective of futures markets is to provide an effective and efficient mechanism for managing price risk. The futures market allows buyers and sellers to stabilize the price of something. Individuals and businesses seek insurance against unfavorable price changes. This is done by buying or selling futures contracts, with a price level set now, for items that will be delivered later. A common practice among futures traders is called hedging. The details of the cover can be somewhat complex but the principle is simple. Hedgers are individuals and companies who make purchases and sales in the futures market with the sole aim of establishing a known price level - weeks or months in advance - for something they have. the intention to subsequently buy or sell in the spot market (for example, in a grain market). elevator or on the bond market). In this way, they attempt to protect themselves against the risk of an unfavorable price change in the meantime or hedgers can use futures contracts to lock in an acceptable margin between their buying cost and their selling price. A perfect example of how futures trading works is provided. in the form of agricultural goods. For example, a food manufacturer will need to purchase additional corn from its supplier in three months..