The general understanding about the commodity trading futures market is that it is a very complex and difficult to analyze market
. However on the other hand it is not so! Infact there are a few basic facts that people need to know of which will change their perception about what the commodity trading futures market is and how they work.
The basic knowledge is that the commodity trading futures market or the exchange market as it is known is a public marketplace where the sale or purchase of commodities takes place. These sales and purchases are done at an agreed price so that commodities are delivered at a specified date. The broker is a person who needs to do the purchase or sales of the commodities. The broker is also a part of the organized exchange and the deal is completed according to the terms and conditions as given in the standardized futures contract.
The main thing that distinguishes the futures commodity trading market and a commodity market where commodities are bought and sold is that the futures market works with the help of contract agreements that follow a standard procedure. These agreements are responsible for delivery of a particular commodity at an amount as specified for a future month. It does not include the immediate transfer of commodities ownership.
In short the buying and selling in the commodity trading futures market does not need the buyer or the seller to be the owner of the particular commodity that they are trading for. With futures the main concern is receiving the delivery or making the delivery of the commodity, however the futures should not be bought or sold during the month of delivery. The previous sale also can be cancelled at any time with respect to the equal offsetting sale. If the sale is cancelled before the commodities delivery month then the trade cancels out completely. In this case the commodity is not received by the buyer or delivered by the seller.
In reality there is only a very small percentage very specifically less than 2% of the total of all futures commodity trading contracts that are settled or entered into through the deliveries. A larger part shows that there is a lot of cancellation of deliveries of commodities even before the delivery month in the manner that is described above.
This forms the basic mechanics or the functioning of the commodity trading futures market.