Speculative activities on commodity exchanges are undertaken by operators who have enough resources and speculate regularly. These operators are called brokers. Speculative deals on commodity exchanges fall into four categories. Firstly, there are forward deals which are the usual speculative transactions in which a person buys at the current price with the hope of selling in the future at a higher price or vice-versa. Secondly, there is option dealing, which means the right to buy or sell a certain commodity within a certain time, and at a certain price is purchased from a dealer. Then there are transactions, which can be carried over to next settlement much in the same way as bulls, or bears carry over their contracts in the stock exchange.
Finally, there is straddle and arbitrage, which mean trade between one market and another, which is a common feature of speculative activities of brokers on the commodity exchange. A straddle means an operation which aims at bridging the gap or covering the spread between two values, by buying at one which seems low at the moment, and selling at other which is relatively high.
If the price in the futures market is higher than the price in the spot market of a particular commodity exchange, straddling may be used to bring about parity between the two markets. This can be done by purchasing in the spot market and selling in the futures market.
It would be better to deal directly through a broker of repute because it ensures prompt action, which is very important in transacting business on a commodity exchange. On the other hand, a broker, which has membership of commodity exchange, would always be present on the spot and can exploit an opportunity for gain quickly and promptly. Having selected a broker, the next step would be to ask him if he would be willing to transact business on behalf of the party concerned. If he is satisfied with the financial standing and honesty of the party, he would intimate his willingness to act on behalf of this client. Generally, they prefer a big client.
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