A commodity market is a market that trades in primary economic sector rather than manufactured products.Soft commodities are agricultural products such as wheat, coffee, cocoa and sugar. Investors access about 50 major commodity markets worldwide with purely financial transactions increasingly outnumbering physical trades in which goods are delivered.Futures contracts are the oldest way of investing in commodities. Commodity markets can include physical trading and derivatives trading using spot prices, forwards, futures, and options on futures.
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Commodity-based money and commodity markets in a crude early form are believed to have originated in Sumer between 4500 BC and 4000 BC.
Sumerians first used clay tokens sealed in a clay vessel, then clay writing tablets to represent the amount—for example, the number of goats, to be delivered.
These promises of time and date of delivery resemble futures contract.
Derivatives are either exchange-traded or over-the-counter (OTC).
An increasing number of derivatives are traded via clearing houses some with Central Counterparty Clearing, which provide clearing and settlement services on a futures exchange, as well as off-exchange in the OTC market.
Derivatives such as futures contracts, Swaps (1970s-), Exchange-traded Commodities (ETC) (2003-), forward contracts have become the primary trading instruments in commodity markets.Futures are traded on regulated commodities exchanges.Over-the-counter (OTC) contracts are "privately negotiated bilateral contracts entered into between the contracting parties directly".Exchange-traded funds (ETFs) began to feature commodities in 2003.Gold ETFs are based on "electronic gold" that does not entail the ownership of physical bullion, with its added costs of insurance and storage in repositories such as the London bullion market.According to the World Gold Council, ETFs allow investors to be exposed to the gold market without the risk of price volatility associated with gold as a physical commodity.