Commodity Market, Types and Importance of Commodity Market

len Alfred Ajibola - Wed, 13th March, 2019 @ 17:01: PM

Topics in Commerce

Principle of Marketing: Positioning as a Marketing Mix Principle of Marketing: Packaging as a Marketing Mix Elements of Promotion in Marketing Mix Principle of Marketing: Promotion as a Marketing Mix Principle of Marketing: Place as a Marketing Mix Principle of Marketing: Price as a Marketing Mix Principles of Marketing: The 7 Ps of Marketing Mix Factors necessary for Division of Labour Disadvantages of Division of Labour Advantages of Division of Labour Outbound Marketing explained Inbound Marketing explained Production - Types of Production Commerce: Definitions and Scopes of Commerce Differences between Balance of Trade and Balance of Payments Balance of Payment Deficit and Balance of Payment Surplus Disadvantages of Foreign Trade Divisions of Foreign Trade Advantages of Foreign Trade What is Foreign Trade? Types of Foreign Trade

Academic Questions in Commerce

Please check out our Test Your Knowledge page to see all Questions and Answers

The followings are principles of marketing mix except _____.

  • A. People

  • B. Positioning

  • C. Pressure group

  • D. Packaging

  • E. Promotion

  • F. Product

The followings are advantages of division of labour EXCEPT _____.

  • A. It promotes the use of machines in production industries
  • B. There is an increase in profit
  • C. It saves time and expenses of training
  • D. It fosters the spirit of division
  • E. It increases the production of quality goods and services in the market
  • F. It increases a country's economic growth

Which of the following statement is incorrect concerning division of labour?

  • A. It is the specialization of works
  • B. It can become monotonous
  • C. It is the specialization of processes
  • D. The nature of a job is not a condition for division of labour
  • E. A person performs only a part of the job
  • F. Division of labour has some of its drawbacks

What does a bearer cheque mean?

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Commodity Market:

First, let's look at the words "commodity" and "market" before we juxtapose both terms.

A commodity is any product with market value.

Such products can be bought or sold with money.

Please read on Consumer Rights and Protection here.

For an item to be considered a commodity, it must satisfy three conditions:

  1. It must be standardized. (Agricultural commodities must be in it's unprocessed state).

  2. It must be usable upon delivery

  3. Its price must vary.

  4. Please read on Supply, Supply Curve and Price here.

Note: A market is a place where the transaction of goods and services are carried out.

A commodity market is a therefore a place where people buy and sell homogenous goods in large quantities.

Homogeneous goods are products that has essentially the same physical characteristics and quality as similar products from other brands.

Recently, foreign currencies, data and bandwidth have been included as part of today's commodity markets. A commodity market will have it's own set of rules and regulations.


Commodities can be put into two:
  1. Hard commodities: They include  goods extracted from earth’s crust via mining processes. Examples of such commodities are crude oil, gold and diamond

  2. Soft commodities: They include all agricultural products and produce. Examples are chicken, wheat and grains.

Please read on Production here.


Commodity trading can be carried out in two forms:

  1. Organized form (commodity exchanges): We have two national commodity exchanges. They are the MCX (Multinational Commodity Exchange) and NCDEX (National Commodity and Derivatives Exchange).

    MCX mainly trade hard commodities whereas NCDEX trade soft commodities.

  2. Unorganized form (local mandis). 

Note: Commodity markets don't set prices of traded commodities. Instead, it is the supply and demand of commodities that determine their prices.

Please read on Demand, Law of Demand and Demand Schedule here.


Why are commodity markets important?

Recall that commodities are the raw materials. When processed, they are used by everyone. For instance, petroleum is the commodity for generating petrol and cooking gas; cotton is the commodity for making clothes and so on. These raw materials (commodities) at one point had probably once interacted with a commodity exchange.

Commodity exchange prices often influence the prices of numerous goods. In fact, changes in commodity prices can affect an entire segments of an economy, bringing the government into play. For instance, Government may offer subsidies for a product like PMS (petrol) or change tax rates.

Please read on Balance of Trade and Balance of Payments here.

Have you ever wondered why most buyers and sellers trade commodities on the futures markets? This is so because many traditional commodities like grains and wheat bear the risk of a "negative price change" when their products are finally ready for the market. Based on this uncertainty, Futures contracts come into play in the sense that the buyer buys the right to receive a specific quantity of the commodity at a specific period of time.

The above process will offer price stability to commodity producers and commodity users.

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Alfred Ajibola is a Medical Biochemist, a passionate Academician with over 7 years of experience, a Versatile Writer, a Web Developer, a Cisco Certified Network Associate and a Cisco CyberOps Associate.

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Amazing facts in Commerce

Amazon is an e-commerce website launched in 1995. It did not make any profit for its first seven years.

Amazon's first profit was in 2003. Its founder 'Jeff Bezos' is the richest man in the world as at 2018/2019


Commerce can be defined as the exchange of goods and services, usually for money and on a large scale that will require the transportation of such goods and services.

Commerce is crucial (important) to the life of any Nation for the following reasons:

  1. Commerce facilitates the exchange of goods and services which everyone can enjoy, regardless their location or whether the goods is produced within or outside their country.
  2. Commerce creates an awareness of the existence of goods and services through advertising.
  3. Commerce offers employment to a very large number of people in a Nation.
  4. Commerce promotes rapid transfer of both oral and written messages through communication.
  5. Commerce determines the standard of living in a Nation. This is because the extent of commercial activities is crucial to wealth of  a nation.
  6. Commerce makes for the protection against risk in day to day business operations.
  7. Through commerce, there is a steady supply of goods in a Nation. This is because commerce ensures that goods produced are stored until needed.

Please read on the functions and characteristics of commerce here

A public company is not owned by an individual; rather it's usually owned by groups or a large number of people.

The shares of a public company are traded freely on the stock exchange.

Below are some features of a public company:

  1. A public company must receive it’s training certificate to commence business.
  2. The minimum membership is two while the maximum membership is limitless.
  3. A public company has a legal status. It can sue and be sued.
  4. A public company files and publishes its annual reports, including its accounts.
  5. The liability of its members is limited.
  6. The shares are easily transferrable through the stock market.
  7. A public company can issue debentures to be secured as its assets.

Please read on Limited Liability Company, Its Advantages and Disadvantages here

There are seven elements of the marketing mix. These are:

  1. Product: Anything thing that satisfies a consumer’s need is referred to as a product. Product may come in the form of manufactured goods, raw materials or services.
  2. Price: Price is defined as the exchange value of goods and services supplied. In simple terms, it serves as a mechanism of exchange.
  3. Promotion: It involves all the processes that concerns with how business organizations should inform their customers about its product. If done properly, the demand of product will be increased. Promotions can take the form of advertising, search engine optimization, social media marketing, trade fairs exhibition and so on.
  4. Place: The place as a marketing mix concerns variables such as location and transport facility where the distribution of goods and services take place.
  5. Packaging
  6. Positioning
  7. People

Think of marketing mix as the set of marketing tools that an industry or company uses to drive or accomplish its marketing objectives in the target market

Please read on the Principles of Marketing Mix here