Climate and weather are different concepts, but relate to each other. Different kinds of climate bring along different weather patterns.

Over-the-counter markets are characterised by a variety of aspects, activities and processes.

Large commodity consumers typically contract their supplies directly at the source. They enter into bilateral agreements with producers.

The price for shipping cargo is called the ‘freight rate’. Hence, the tariff at which a vessel is chartered is referred to as the so-called freight rate.

The Baltic Exchange develops and maintains various indices for freight.

International Commercial Terms (in brief:  ‘Incoterms’) are a series of pre-defined commercial terms published by the International Chamber of Commerce relating to international commercial law.

In the metal markets, physical players come together to enter into supply contracts.

The Earth is actually one great collection of commodities, but, because of excessive use, supply of raw materials may run out one day.

Next to supply contracts, market participants enter into derivatives contracts.

A soft commodity is a product that can be grown, while a hard commodity concerns a natural resource which is mined.

If prices would not move, there would be no price risk. In markets where the price level is regulated and, consequently, fixed for the remainder of the year, price volatility does not exist.

Risk is not a synonym for uncertainty, because risk can be quantified, whereas uncertainty cannot. Risk quantification is based on a formula including ‘probability’ and ‘effect’.

The moment a futures contract, an option contract or a swap agreement is entered into by buyer and seller, a position is opened.

An exchange of futures for physicals (EFP) is a transaction process allowed by an exchange to enable market participants to manage their market risk with direct reference to the price of an underlying physical transaction.

In the commodity business, settlement is one of the main processes in deal-making. Settlement is the actual process that provides the final completion of a transaction; the unwinding of the transaction.

In order to guarantee the duties of a clearing house, market participants need to arrange for a guarantee for each position, for instance, being commodity (derivatives) contract.

In the field of trading operations, clearing of transactions is a very important process. Clearing is often considered guaranteeing the settlement of a contract between two parties, like a form of insurance.

Counterparty risk consists of delivery risk for the buyer and credit risk for the seller. These risks have to be managed by those parties who are involved with it.

Commodity trading can be considered a business function. As with any business, it has to be checked and verified by control functions and it has to be given assistance by support functions.

Typical commodity & energy trade operations are quite diverse.

A rational market participant should be indifferent to buy an asset now or in time. Pricing of products should be accordingly, including commodities and financial instruments.

Options can be used to create an exposure (and, thus, to speculate), but, alternatively, they can be applied as an instrument to hedge an exposure.

‘Commoditisation’, or ‘commodification’, concerns a process of standardisation or creating fungibility.

The supply chain, or the value chain, concerns the system of organisations, people, technology, activities, information and resources …

Commodities themselves can also be classified. As always, classifications can be made in various ways.

In order to understand the place of the commodity markets, one needs to consider the bigger picture.