What Economic Purchase Does a Commodity Exchange Serve?
Commodity exchange enables individuals and institutions to transfer the risks of ownership of commodities onto a class of individuals known as speculators, who are willing to assume these risks. These local traders, who operate on the trading floor and trade for their own accounts, are doing just that. Nonmember traders who trade for themselves are also speculators expect, as nonmembers, they are not allowed on the trading floor.That is basically what the yelling and screaming on a trading floor is all about, individuals and institutions transferring risks back and forth among one another.If a wheat farmer, for example, wants to protect the price of his wheat crop that is due in three months, he will go into the futures market and sell short to protect his profit. If a cereal manufacturer wants to lock in the price of wheat three months in the future ,it will buy futures contracts for delivery in the three months: and the local traders and outside speculators’ provide the liquidity tha
