Longdom Publishing SL | Open Access Journals (2024)

The Impact of Commodity on Stock Market

Suh Wang^*

^*Correspondence:Suh Wang, Department of Computer Science, University of Jaén, Jaén,Spain, Email:

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Description

Commodity markets have been an integral part of humancivilization for centuries. From the early days of barter trade tothe sophisticated futures trading of today, the buying and sellingof raw materials and products has been a crucial aspect of oureconomic systems. In this article, we will provide an overview ofthe commodity market, its characteristics, and its role in theglobal economy. Commodities are raw materials or products thatare used in manufacturing, construction, and consumption.These products can be traded on commodity markets, and theirprices are determined by supply and demand factors. Examplesof commodities include energy products like crude oil andnatural gas, metals like gold and silver, agricultural products likecorn and wheat, and livestock like cattle and hogs.

Commodity markets

Commodity markets are where commodities are bought andsold. These markets can be physical or virtual. Physicalcommodity markets involve the actual physical exchange of thecommodity, such as in the case of agricultural products likewheat or livestock. In contrast, virtual commodity markets areelectronic marketplaces where buyers and sellers can tradecommodities without ever physically exchanging the underlyingproduct. The commodities market can be divided into two maincategories: spot markets and futures markets. Spot marketsinvolve the immediate delivery of the commodity uponpurchase. Futures markets, on the other hand, involve contractsfor future delivery of the commodity at a predetermined price.Futures markets are used to hedge against price volatility and tospeculate on future price movements [1-5].

Factors that affect commodity prices

Commodity prices are influenced by a variety of factors,including supply and demand, geopolitical events, weatherpatterns, and global economic conditions. For example, if thereis a drought in a major agricultural region, the supply of cropslike wheat and corn may be reduced, leading to higher prices.Similarly, if there is political instability in an oil-producing region, the supply of crude oil may be disrupted, leading tohigher prices [6-10].

Speculators and hedgers

The commodity market is comprised of two types of traders:speculators and hedgers. Speculators are traders who seek toprofit from price movements in the commodity markets. Theydo not have a direct interest in the underlying commodity butinstead aim to profit from changes in its price. Hedgers, on theother hand, use the futures market to manage their price risk.They may be producers or consumers of the underlyingcommodity and use futures contracts to lock in a price for theirfuture transactions [11,12].

Role of commodity markets in the global economy

The commodity market plays a vital role in the global economy.It provides a platform for producers and consumers to managetheir price risk, allowing them to focus on their core businessoperations. It also helps to allocate resources efficiently byproviding price signals that guide producers and consumers intheir decision-making processes. Commodity markets also serveas a barometer of global economic conditions. For example, ifcommodity prices are rising, it may be an indication of strongglobal demand and a growing economy. Similarly, if commodityprices are falling, it may be a sign of weaker demand and aslowing economy [13].

Risks and challenges

Like any financial market, the commodity market is subject torisks and challenges. One of the main risks is price volatility.Commodity prices can be highly volatile, making it difficult forproducers and consumers to plan and budget for theiroperations. This volatility can also create opportunities forspeculators to profit from price movements, which can lead tomarket distortions. Another challenge is the potential for marketmanipulation [14,15]. The commodity market has beenprone to manipulation in the past, with traders using theirpositions to influence prices in their favour. Regulators haveimplemented measures to reduce the risk of manipulation, but it remains aconcern in the market.

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