How is the concept of time important to commodities trading? What wil

QUESTION

How is the concept of time important to commodities trading?

What will be an ideal response?

ANSWER

Answer: Commodities trading is very future-oriented. Futures contracts are a main element of this process. In these contracts, the trader agrees to buy a specific amount of a commodity at a certain price at a certain date. The trader bets that the contracted future purchase price will offer a financial benefit compared to the market price for the commodity at that time.
Explanation: Commodities traders try to look forward in time and judge what market prices will be for a commodity. They draw up futures contracts agreeing to buy a specific amount of a commodity at a specific date and price. If the contracted price they pay is lower than market price, they reap savings or can sell the commodity at the higher price and make a profit. If the market price is lower, they are buying the commodity at a higher contracted price, taking a loss.