Types of Commodity Exchange
(i) Spot Trading: It is a system of commodity trading on the spot where delivery takes place, immediately. Spot trading involves the visual or physical inspection of the commodity or sample of such commodity carried in markets such as wholesale market. It is otherwise known as “Spot cash and delivery”.
(ii) Forward Future: This is a trading agreement between sellers and buyers to sell and exchange a pre-determined quantity of foods at a pre-specified market price and fixed future time. Delivery of the goods usually takes place in the future and not immediately based on the agreement of the buyer and seller. The price at which the commodity will be exchanged in the future is known as “forward price”.
(iii) Hedging: It is a system where commodities are fixed at a price in order to mitigate fluctuations in the price of the commodity. It is anticipation towards projected bad future prices of commodities. In this case, the price of a commodity must have been fixed before harvest.
(iv) Delivery and Condition Guarantee: This is an agreement between the seller and the buyer to sell and deliver a certain quantity of commodity prior to certain conditions before payment is made.
(v) Day Trading: It entails buying and selling of stocks throughout the day in the hope that the price of the stocks will fluctuate in value during the day in order to allow the day traders to earn quick profits.