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WIKI ANALYSIS| This article is part of WikiProject Definitions. Consider editing to improve it. View articles referencing this definition. |
A commodity exchange sets and enforces rules pertaining to the trading of commodities and their related derivatives. Nowadays, commodity exchange also refers to the physical location where commodities are traded.
The Chicago Board of Trade (CBOT) is perhaps the most famous commodity exchange. Owing to its central location in the Midwest, this exchange has traditionally been where agricultural producers from this region and the West exchanged their produce for cash with consumers from the East.
The London Metal Exchange (LME) is another large commodity exchange. It deals in precious metals such as palladium and platinum as well as other base metals.
Futures contracts and options are the primary instruments that traders use while trading on commodity exchanges. Individual investors can trade on a commodity exchange as well so long as they conform to the regulations of the exchange and have the money to invest. Nonetheless, a large proportion of trading on these exchanges is done by professional traders from investment banks, hedge funds and large associations of commodity producers looking to hedge against risk.
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