Soft Commodities
What is the most traded soft commodity?
coffee
What does a call option allow you to do?
Buy a commodity at a predetermined price.
What is the main factor affecting coffee prices?
Weather and global demand.
What is the role of a clearinghouse in commodity exchanges?
It acts as an intermediary between buyers and sellers to guarantee the trade, reducing default risk.
Name a soft commodity often used in beverages
coffee or cocoa
What is the main risk of trading futures?
High leverage can lead to significant losses.
How does the U.S. dollar affect commodity prices?
A stronger dollar makes commodities more expensive for international buyers.
Why do commodity exchanges use standardized contracts?
To ensure uniformity in quantity, quality, and delivery terms, facilitating easier trading.
What is the primary use of sugar as a commodity?
Food production and ethanol manufacturing.
Name one commodity commonly traded as a futures contract
Corn, wheat, crude oil, coffee, etc.
What is the impact of a drought on agricultural commodities?
Reduces supply, leading to higher prices.
What is a basis in commodity markets, and how is it calculated?
The difference between the local cash price of a commodity and the futures price; Basis = Cash Price - Futures Price.
What is the main factor affecting cotton prices?
Weather and global demand for textiles.
What does "implied volatility" mean in the context of options pricing?
It refers to the market's expectation of how much the price of the underlying asset will fluctuate during the life of the option.
Name one geopolitical event that can impact commodity prices
Trade restrictions, wars, tariffs.
What is "open interest" in futures trading, and why is it important?
Open interest is the total number of outstanding contracts in a market, indicating market liquidity and trader activity.