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Commodities Charts

Commodities charts are used to track the activity of various commodities.

Commodities Charts

Commodities charts are charts that track the activity of commodities through the market in sale process and volume. Commodities charts are used by investors to track the supply and demand of a given commodity in an attempt to anticipate the future value of specific commodities. Charts are a tool that market investors use to decide which commodity is the safest investment or which may yield the best investment return. These charts illustrate the movements of commodities listed on commodity exchanges such as the US Futures Exchange, LLC and the New York Mercantile Exchange, Incorporated (NYMEX).

A commodity is any physical good bought and sold by an investor on an exchange market. These goods include raw materials such as cotton, crude oil and grains as well as metals and international currency.

Many commodities charts represent the sale of futures contracts. A futures contract is an agreement between a producer and an investor on a price and quantity of a commodity for a sale at a specified future date. This contract obligates each party to fulfill the contract according to the price agreed upon, regardless of changes in the market by the time the contract is to be fulfilled.

The investor and producer enter into the futures contract predicting what the value of the good will be at the predetermined sale date. Commodities charts are a crucial tool in making these determinations. The risk incurred on either side stems from neither party knowing future circumstances governing the price, production and demand of the commodity.

Most commodities charts are listed on exchanges that standardize the sale of futures contracts. The Chicago Board of Trade (CBOT) stipulates that a futures contract for bushels of wheat must be satisfied with respect to certain available grades. The investor using commodities charts for wheat may reach an agreement on price based on the value of a higher grade of wheat. The CBOT protects the investor and producer by setting guidelines for the expectation of the quality of the goods delivered.

The same basic material may be represented on different commodities charts on other exchanges because the same commodity may be available through several producers and traded on different exchanges. Investors buy from various producers because, in most cases, the same raw good is interchangeable regardless of the producer. For example, investors interested in buying shares of gold assume that they will get the same return for the same amount of gold from any producer. However, the investor buying stock in a car manufacturer will first research the commodities charts to consider the performance of the company, the financial security of the company and the quality and affordability of the products they offer in comparison to that of their competitors.

All commodities exchanges are regulated by the Commodity Futures Trading Commission, which was created in 1974 as a federal agency assigned to administer the Commodity Exchange Act. The Commodity Exchange Act of 1974 was initially established to oversee the agricultural sector. The CFTC has evolved with the expansion of the types of commodities traded.

How are Commodities Charts Read and Used?

The first two letters in the symbols on the commodities charts indicate the commodity itself. The next letter represents the month in question for sale of the goods. If there is a number at the end, that is the last digit of the year in question. For example, the commodity represented by XX that is being traded for delivery in December 2009 will then read, XXZ9. From this the investor can discern the good and the date represented on the commodity chart.

The two common commodities charts used by investors are bar charts and point-and-figure charts. The bar commodity chart graphs selling prices for a specified time period of trade and denotes the recent high and low prices of the commodity. Point-and-figure commodities charts are used to illustrate a specific pattern in price changes without regard to specific dates. While dates are represented on some point-and-figure commodities charts, the focus is on finding a price pattern. In other words, the pattern of a commodities chart may show that the price typically dips for a length of time and then rebounds. The point-and-figure commodities charts show the reader a trend line to illustrate the beginning of the pattern as well as a target point to watch for in order to determine the best time to invest.

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