Commodity Market: Definition, Types, Example, and How It Works

The law put in place reporting requirements and attempted to limit price fluctuations by mandating all grain futures to be traded on regulated futures exchanges. In the turbulent years moving into the 1930s, American commodity markets had many well-publicized scandals. Speculators fueled wild price swings that threatened to crush farmers and starve those already facing the ravages of the Great Depression. Its most tangible result was establishing the Commodity Exchange Commission (CEC) as an independent agency under the Department of Agriculture.

For instance, you might buy or sell a physical product, hedge parts of your portfolio, speculate on changing commodity prices, or arbitrage across markets. Navigating the commodity markets requires a good understanding of supply chains and global events, extending well beyond financial analyses, which can be challenging enough. Individual investors may find trading commodity-focused exchange-traded funds (ETFs) or shares in commodity-focused companies easier. Today, U.S. commodity exchanges list options and futures contracts on a wide range of products, including gold, silver, U.S.

It is said to achieve its mission through four different types of activities. Previously aafx trading review known as the Division of Swap Dealer and Intermediary Oversight (DSIO), the Market Participants Division (MPD) aims to educate the general public about the derivatives market. The Division of Enforcement (DOE) is responsible for investigating and enforcing violations of the Commodity Exchange Act (CEA) and CFTC regulations and aiding civil actions that may arise from these breaches.

Forwards and futures are generally the same, except that forwards are customizable and trade over-the-counter, while futures are standardized and traded on exchanges. The Commodity Future Trading Commission (CFTC) is an independent federal agency whose mission is to promote the integrity, resilience, and vibrancy of the US derivatives markets through sound regulation. The CFTC was founded in 1974, replacing the Commodity Exchange Authority whose jurisdiction was limited to agricultural commodities.

What does the Commodity Futures Trading Commission do?

It has five commissioners who are appointed by the U.S. president to staggered five-year terms; no more than three can belong to the same political party at a time. Through its various offices and divisions, the CFTC plays a key role in the U.S. derivatives market. It provides market users and the general public with information about fraudulent or abusive practices related to commodity futures and options markets. With regulations, guidelines and public education, the CFTC works to ensure those markets remain secure, stable and transparent. The Chicago Board of Trade (CBOT), founded in 1848, standardized how grain futures were traded.

1. The CFTC is an independent United States government agency responsible for regulating the derivatives market and its intermediaries.
2. Each exchange offers a wide range of global benchmarks across major asset classes.
3. The CFTC consists of five commissioners appointed by the President and confirmed by the Senate, with a maximum of only three representatives from any one political party.
4. Well, apparently in 1955, two onion traders by the name of Sam Siegel and Vincent Kosuga gained millions of dollars by unethically controlling and monopolizing the onion futures market.
5. However, it encountered a growing universe of complex financial products, including options, foreign currency futures, and the mushrooming interest rate derivatives market.

Examples of Commodities Markets

Today, commodities are still exchanged throughout the world—and on a massive scale. Trading has also become more sophisticated with the advent of exchanges and derivatives markets. Exchanges regulate and standardize commodity trading, allowing for liquid and efficient markets. Generally speaking, commodities trade either in spot markets or financial commodity or derivatives markets. Spot markets can be physical or “cash markets” where people and companies buy and sell physical commodities for immediate delivery. Futures contracts for agricultural commodities have been traded in the United States for more than 150 years and have been under Federal regulation since the 1920s.

Commodity Futures Trading Commission (CFTC) Overview

For information pertaining to the registration status of 11 Financial, please contact the state securities regulators for those states in which 11 Financial maintains a registration filing. A copy of 11 Financial’s current written disclosure statement discussing 11 Financial’s business operations, services, and fees is available at the SEC’s investment adviser public information website – from 11 Financial upon written request. The Office of International Affairs (OIA) is responsible for engaging with industry counterparts to help facilitate information sharing and promote strong market oversight on a global scale. OCE is also responsible for keeping abreast of changing regulatory and economic landscape to ensure their analyses are kept up-to-date.

Finance Strategists has an advertising relationship with some of the companies included on this website. We may earn a commission when you click on a link or make a purchase through the links on our site. All of our content is based on objective analysis, and the opinions are our own. If you want to invest in the derivatives market, learning about the CFTC and how it protects your investment is an excellent first step. You can also consult a financial advisor to guide you through diversifying your portfolio by entering this market as an investor.

It ensures that these markets are efficient, fair, and transparent and that all market participants comply with applicable laws and regulations. The agency also fosters healthy competition among market participants and protects investors from fraudulent activities. The CFTC, on the other hand, is granted the power to regulate futures, swaps, and options markets in all commodities.

The CFTC was created by the Commodity Exchange Act, while the SEC was created by The Securities Exchange Act of 1934. The Commodity Futures Trading Commission promotes diversity, inclusion, and fair hiring throughout its organization. To that end, it established the Office of Minority and Women Inclusion (OMWI). The OLIA creates and implements legislative strategy on behalf of the CFTC, manages congressional testimonies, and provides technical legislative advice to other divisions. The Division of Data (DOD) manages the Commodity Futures Trading Commission’s strategies and approaches toward the analysis, visualization, and storage of data.

Commodity Market Trading vs. Stock Trading

Under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFTC is assigned full responsibility to regulate swaps, and the SEC to regulate security-based swaps. Interestingly, insurance products are not regulated by either agency as they are neither coinspot reviews swaps nor security-based swaps. But rather, it is the inclusion of “contracts for future deliveries” which refers to futures contracts. If you still don’t have any idea, future contracts are legal agreements to buy or sell something at a predetermined price at a specified time in the future, thus allowing investors to make speculations.

The CFTC requested $399 million from Congress for FY 2025, about a 3% decrease from the previous fiscal year. Early on, farmers and merchants relied on forward contracts to manage costs when there were problems (either too much or too little) in supply chains. Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance.