The typical image of the floor of the Mercantile Exchange being filled with a bunch of guys that couldn’t get jobs anywhere else is very outdated and wrong. Instead commodity traders are increasingly becoming some of the most sophisticated investors on earth.
The largest group of traders are definitely the upstairs trader, or traders that are not on the floor of the exchange. Some have floor experience while others do not. The largest group of these are systematic long term trend followers while there are smaller subsets that do purely fundamental and others a hybrid model.
Next up are the global macro traders. They are probably the second largest group of commodity traders as they look to trade disparate and uncorrelated asset classes, as well as get a better picture of global imbalances.
For instance if oil is rising like we saw in 2008 then you have to look to see what businesses are going to get hurt and what will benefit from higher oil prices. Obviously oil companies will make more money but what about shorting airlines? Or maybe even going long railroad companies. As you can tell there are endless ideas of who is affected and who is not.
One area that also gets a ton of attention is that of precious metals. Precious metals have a small piece of the industrial machine but mostly are used as an inflation hedge and as an asset backed alternative currency as more and more of the fiat currencies look long term bankrupt.
Industrial metals are also a big deal as almost everything you buy or use has some type of metal in it. Copper for electrical wires, lead for batteries, aluminum for cans, etc. The list is virtually endless and between the MERC, the NYMEX, and the LME you can trade basically all of it. If you aren’t tracking industrial metals then you are not pricing out the number one cost for most manufacturing and industrial companies.
Agricultural commodities are the last major group of commodities and the ones that tend to get the shortest thrift. This is a mistake as the worlds economies continue to grow and more and more people become more prosperous they eat better and better. This coupled with the fact that there is less water on earth and you have the potential for a large increase in the price of food worldwide.
Obviously commodities are huge part of the global economy. If you are not using and monitoring them you are missing out on some of the biggest puzzle pieces out there. If you are a global macro trader you need to be monitoring all the commodity complexes.
