A commodity exchange is a regulatory body for commodity trade.The commodity exchange sets and enforces rules pertaining to commodity and commodity derivative trade. Now, the word commodity exchange also refers to the physical location where the actual trading of commodities takes place. The most famous Commodity exchange is undoubtedly the CBOT - Chicago Board of Trade. Since it is centrally located(Midwestern USA), it traditionally was the place where the agricultural producers of the midwest and west exchanged their produce for cash from the consumers from Eastern USA. The London Metal exchange is another big commodity exchange dealing with precious metals such as palladium and platinum as well as base metals . Futures Contracts and Options are the primary instruments that traders use while trading on such exchanges.
Individuals can trade on a commodity exchange too, as long as they conform to the regulations of the exchange and have the money to invest. However, a large portion of the trading on these exchanges is done by professional traders(often part of investment banks) , by hedge funds and large associations of commodity producers to hedge against risk.
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