investigated prior to opening an account for registration with regulatory bodies such as the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA). Since many commodities are traded as futures contracts, the actual physical exchange of the commodity does not have to occur as the commodities exchange can resell the physical contract and/or hold the underlying asset value through its market making capacities and/or financial affiliations.

There are several commodities exchanges around the World through which futures commission merchants operate. A few of which include the Chicago Mercantile Exchange (CME), New York Mercantile Exchange (NYME), Tokyo Commodities Exchange (TOCOM) and Dubai Gold and Commodities Exchange (DGCX) (wikipedia.com) and each day, futures positions are settled and accounts with futures commission merchants are debited or credited to reflect daily changes in the price of futures contracts held. (nfa.futtures.org). When the trader or broker of the contract decides to sell the contract and/or if the contract expiration date is reached, a final cash settlement will occur yielding either a gain or a loss. Since futures contracts are often bought using leverage i.e. margin that allows the buyer to purchase more with less, large fluctuations in commodities prices can having corresponding multiplied losses or gains to the value of the account through which the contract(s) are purchased.

SUMMARY:

Commodities trading involves the exchange of either commodities futures contracts, exchange traded funds (ETF) that themselves trade commodities futures contracts or companies that produce commodities. Levels of risk vary with the method by which commodities are exchanged i.e. direct or indirect, market conditions and the use of leverage in the exchange of shares and/or futures contracts. Commodities futures are exchanged through futures commission merchants who facilitate trade via the commodities exchange itself. These financial intermediaries function as brokers, charge fees and/or commissions for their services and may be registered with commissions regulatory bodies. The practice of commodities trading may be participated in for a number of purposes including 1) market speculation 2) hedging of risk by commodities producers and 3) financial strategy by funds and/or financial institutions participating in the trade of commodities futures contracts.

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Sources:

http://www.investopedia.com/ar ticles/optioninvestor/07/energ y-ETF.asp?Page=2

http://en.wikipedia.org/wiki/C ommodities_exchange

http://www.investopedia.com/ar ticles/trading/05/021605.asp

http://www.nfa.futures.org/reg istration/fcm.asp

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