The commodity trading universe is now based on a modern, open, well regulated network of commodity exchanges across all time zones. Primary producers and end users can trade commodities within agreed and well defined regulations and using standardised contracts and dispute mechanisms. With the result that today it is much easier to smoothly trade across the range of commodities from gold to rice and from crude oil to aluminium and sugar.

Consider that a few commodities like crude oil and coffee have been traded for a very long time in mature markets, but now we see early 21st century markets innovating with different types of futures contracts being introduced. Among these more colourful types of commodity are carbon in the form of emission permits. With the rising anxiety about the serious environmental damage from climate change caused by greenhouse gases, a fast growing market has mushroomed in emissions permits, a form of activity known as carbon trading.

For the foreseeable future it is likely we will see continual growth of markets which place a price on the environment, with further development in emissions, plastics and perhaps even water. The basis of commodity trading activity is the buying and selling of futures contracts for a whole range of commodities. While the nickel or cocoa producer will use commodity futures contracts to hedge their future sales, commercial end users will also use these contracts for hedging against sudden spikes in prices.

The main actors in the commodity markets are the speculators who trade futures contracts for profit and their activity brings liquidity, while commodity end users and producers play a smaller role. In essence a futures contract is allows a trader to sell or buy a specified quantity of a particular commodity at an agreed future date, where price is subject to the forces of supply and demand when they contract is made.

Global commodity markets now see traders increasingly active using electronic trading platforms which are open 24 hours as the traditional open outcry on exchange floors falls away in overall terms. We now see the volumes of electronic trading increasing and many exchanges have merged to consolidate their platforms and achieve synergy.

Small retail speculators are now able to commit small amounts of capital to these global commodity markets due to ease of online access and use of real time data and online trading software availability. Some traders will prefer to focus on fundamentals like demand and supply of basic commodities to decide when to trade, while others tend to follow the price action of a commodity irrespective of sector, on the basis that technically analysis suggests it is offering significant opportunities for making profits.

The BRIC economies refer to China, Brazil, India and Russia and these emerging countries look set to continue growing over the long term and with them the growth in regional commodity markets should continue. In the Middle East we see how Dubai is rapidly emerging as an important financial centre, where one can trade WTI light, sweet crude oil, gold and silver, steel, plastics and Indian Rupee at Dubai Gold and Commodities Exchange. In China, Dalian Commodity Exchange has plans to expand beyond its traditional area of agriculture commodities and move into industrial metals and other areas.

The global credit crunch has had a profound impact on the world economy with growth being cut sharply and this has had knock-on effect on commodity prices and demand, with major companies and some economies being hit badly, yet as an asset class commodities seem unimpaired. If we look beyond the short term problems, the world economy will still need the major commodities like crude oil, iron ore, aluminium, and copper, as well as softs like sugar, cocoa and coffee, and the grains like soybean and rice. So looking ahead commodity markets will recover and the environment for commodity trading will be such that it will continue to be at the heart of world finance.