How does commodity trade take place on an exchange?
To every a trade there is always a buyer and a seller. The buyer will approach his broker (with a buy instruction) while the seller will also act the same way with a sell instruction. Both brokers will come to the floor of the exchange to trade based on the instructions from their clients (buyer and seller). The exchange’s trading engine will match the trade on price-time priority basis.? If the trade is matched, the buyer and the seller have a firm obligation to honour their commitments if they leave their position open till maturity. About three days to the maturity of the contract (depending on the trading rules and regulation of the exchange) the seller will deliver the commodity that he is selling into an accredited warehouse and sends the warehouse receipt to the exchange through his broker. The buyer will also have the obligation to deposit in the exchange’s clearing bank through his broker the full value of the contract plus commission where applicable.? The exchange or its cle
