Commodity Trading Types

Categorized to facilitate easy price comparison and research among other things, are commodities. Risky, but possibly the most profitable area, investors will need to know the basics in order to trade successfully.

Energies
Recently one of the most active areas, 'the energies' cover a variety of products used to provide energy to heat and power homes and businesses. The most common are petroleum and its byproducts: crude oil, heating oil, propane, natural gas, coal and a few others, mostly sub-types or derivatives.

Every commodity has its distinctive 'tick' (minimum price change), set by the exchanges, and a standard contract size. A standard contract size is the amount covered by a standard futures contract. For example, in the case of crude oil, the amount is 1,000 barrels. The amount for wheat, by contrast, is 5,000 bushels.

Grains
Wheat, oats, corn, rice and soybean are all agricultural products traded on the Chicago Board of Trade (CBOT) along with various other exchanges. Here again the exchanges also trade the product, along with futures and options contracts on these and several derivative products such as bean oil.

Each product has a tick, unit and standard contract size. It is easy to see why most traders never see the actual commodity when prices, like for soybean meal, are listed in dollars per ton where the standard contract size is 100 tons.

Softs
‘Soft’ commodities include coffee, cocoa, sugar, cotton and orange juice, many of which are traded on the aptly named CSCE (Coffee, Sugar and Cocoa Exchange). Interestingly, it’s the juice, and not the fruit that is traded as a commodity, since 80% of the oranges grown in the U.S. are turned into frozen orange juice concentrate.

A relative newcomer on the New York Cotton Exchanges, FCOJ (Frozen Concentrated Orange Juice) has been actively traded since the creation and widespread use of inexpensive refrigeration, post WWII.

Meats
Traded on various exchanges are live cattle, pork bellies and lean hogs, and some derivatives. One such exchange is the historical center of livestock trading in the U.S., the KCBT (Kansas City Board of Trade),.

Pork bellies are particularly interesting, in that the bacon produced from them generally has no substitute with a similar product. As hogs are fed mostly with corn, their price is heavily dependent on the price of grain. Despite this, prices tend to be less volatile than many other commodities.

Financials
As most traders invest in commodities futures or options, and not the actual good itself, financial products are often listed on the same exchanges.

Along with purchasable U.S. Treasury Bonds futures traded on the CBOT and elsewhere, there are a few indexes that track stocks and others. For example, a popularly traded item is the S&P 500 Index futures contract.

It is important to remember that when you see prices quoted, some sites will list abbreviations for the expiration month of the futures contract. The list used is as follows, listed by quarter: