Commodity exchanges are markets where many buyers and sellers are simultaneously active, entering into spot transactions for immediate delivery of the physical commodity, or derivatives transactions with forward, futures, and options instruments. Commodities traded on exchanges are characterized by relatively few quality grades and are desirable to a sizable number of sellers and buyers. Price determination is a key function of the exchanges. Because exchange prices are monitored and published, they are used to determine price levels in deals outside the exchanges.
Commodities traded at auctions and through bilateral contracts result in the actual transfer of the physical commodity. Auctions and bilateral contracts serve as markets for commodities that do not lend themselves to exchange instruments. Bilateral contracts are the predominant arrangement in international commodities trade.
Derivatives, such as forwards, futures, swaps, and options, are central to pricing and managing risk in commodities trade. Commodities buyers and sellers can conclude spot transactions for cash or enter into forward contracts for delivery of a specific commodity at a specified future time at a set price. Although forward contracts are not standardized and tradable on an exchange, they can be traded in over-the-counter (OTC) markets. Futures contracts, however, are standardized legal agreements to buy or sell a specified quantity of a commodity for an agreed price, with delivery at a particular future time. Because futures trade on exchanges, which provide a secondary market, buyers and sellers can avoid taking delivery of underlying commodities. Commodity options are directly related to futures contracts. They are rights to buy or sell something by (or at) some specified future date at a specified amount. Swap transactions involve the agreement between two parties to exchange cashflows, the sizes of which are based on different price indexes.
In the United States, the CME Group owns four major exchanges: CME (Chicago Mercantile Exchange), CBOT (Chicago Board of Trade), NYMEX (New York Mercantile Exchange), and COMEX (Commodity Exchange, Inc.). By daily volume the CME is the world's largest futures and options market. It began as a marketplace for agricultural futures, but is now a major exchange for precious metals, foreign currencies, treasury bonds, cryptocurrencies, and many kinds of derivatives. The CBOT originally focused on agricultural products, but later expanded to include gold, silver, U.S. Treasury bonds, and energy. It merged with the CME in 2007. Trading on the NYMEX includes a variety of energy and agricultural futures while the COMEX trades primarily metals.
Established in Atlanta in 2000 the Intercontinental Commodity Exchange (ICE) operates futures exchanges, cash exchanges, central clearing houses, and market services for off-exchange trading. Originally focused upon energy commodities, ICE now also trades soft commodities, foreign exchange, and equity futures. It owns the former London International Financial Futures and Options Exchange (LIFFE), which now operates as ICE Futures Europe. Other large global exchanges include the London Metals Exchange (LME) and the Tokyo Commodity Exchange (TOCOM).
The U.S. Commodity Futures Trading Commission (CFTC) regulates the commodity futures, options, swaps and OTC markets, and is an excellent source for market data and reports.
The following materials link to fuller bibliographic information in the Library of Congress Online Catalog. Links to digital content are provided when available.
The following are sources of information about major commodities exchanges.