Comdex — The commodity market
In Comdex 101 an explanation was given about the goal for Comdex as a project. In short, Comdex will offer the possibility to follow the price movements of commodities using the advantages of a DEX and crypto. But to understand the potential of the markets offered by Comdex it is wise to look at the existing commodity markets.
Types of commodities
First of all we have to define the definition of a commodity. The common meaning of commodity is an economic good (often a resource) indifferent from the shape it has. Let’s take one of the commodities which is known by everyone; gold. For gold it does not matter whether it is in the form a pure gold, in the form of an ingot or a coin; thereby fulfilling the definition of a resource for which it does not matter in which shape it is. For that reason we can call this a commodity.
Commodities can be all kinds of resources, for example more traditional types as;
- crude oil
- precious metals
- agricultural products
But also newer futures added more recently. For example, with the latest focus on climate change and accompanying measures, trading in emissions can be shared under commodity trading. But also cutting-edge commodities like nano-materials can be traded.
A list of the top 10 traded commodities in 2019 can be found below.
Looking back at the various types of commodities and the above shown top10 it becomes clear that energy and agricultural are the most traded futures on the commodity markets. In 2019 this even accounted more than 75% of the complete global commodity futres trade volume (source).
It can be easily seen that the global trading volume is enormous and tapping into that volume is interesting for a crypto project.
A characteristic of the commodity markets is that these tend to move slower price wise in comparison to stock markets or in extremis cryptocurrency markets. However, they do respond to political, natural and economic events just as we know from the stock markets. For example, political events in the Middle East might affect the oil prices and a natural event such as a draught affects the agricultural commodities.
Types of trades
Trading includes different types of contracts on these commodities like forwards (a contract between two parties who agree to buy/sell a commodity at a specified future time against a specified price), futures (selling products which will be produced in the future), options (a contract giving the owner the option to buy a commodity in the future) and spot trades. It can be noted that on average the amount of contracts traded is growing.
The commodity exchange of ComDex will play a role here. More details on how this will look like will come in the future.
Nowadays commodities are traded on all kinds of Centralised Exchanges. There are a couple of really big exchanges and a longer tail of smaller ones. An overview of the top 10 of 2019 can be seen in the table below.
The top 3 accounts for roughly 50% of all trading volume on commodity exchanges. All in all the APAC region is the most active region, also clearly shown in the top10 where the APAC region is heavily represented with multiple high-ranked exchanges.
Just joining the biggest exchange does not offer you the right commodities you want to trade though. Some of the markets might be exclusively offered on a couple of exchanges. Also the liquidity of the market itself can differ between the exchanges. Traders prefer the most liquid markets, since this offers less slippage and is thus better fit for daytrading (e.g. swing trading) and getting the right long term positions. The table below shows that depending on the commodity type a different exchange might be the best fit for trades.
In a couple of years we might just see ComDex as one of the new major players in the top of the commodity markets as well. Stay tuned for more news!