Commodity Exchange

A commodity exchange is a market organized to allow for the selling and buying of commodities. Commodities, which are hard goods, as opposed to services, may be bought and sold on a commodity exchange in three types of markets: cash, futures and options. Cocoa, corn, crude oil, and gold are a few examples of commodities traded on a commodity exchange. A commodity exchange is considered to be essentially public because anybody may trade through its member firms. The commodity exchange itself regulates the trading practices of its members while prices on a commodity exchange are determined by supply and demand. A commodity exchange provides the rules, procedures, and physical for commodity trading, oversees trading practices, and gathers and disseminates marketplace information. Commodity exchange transactions take place on the commodity exchange floor, in what is called a pit, and must be effected within certain time limits. Floor traders, floor brokers and futures commissions merchants working on the floor of a commodity exchange must be registered by the SEC.