History of Commodity Trading
The history of commodity trading is one of the most interesting aspects of this kind of trading. It traces its roots all the way back to ancient Egypt, with a clear beginning and an end. History of commodity trading was initiated by the traders who came to America to establish their own trading colonies. Even if the history of commodity trading does not end with the establishment of the colony in America, it definitely does not begin there either.
As far as the early history of commodity trading is concerned, it all begins with the establishment of Barter system. This system is where trade is very informal. So the exchange of commodities between countries has no fixed form and meaning. But this idea soon took the shape of money transformed into paper assets. This trade also became more formal and the barter system was replaced by the commodity exchange system.
Trade is carried out on the principle of mutual benefit and if the outcome is in favor of both the parties then there is no problem. But when there are loss and advantage, it can easily lead to problems. It is very easy to understand the history of commodity trading because traders do not come up with anything that is earth shattering. But each trader comes up with something different.
Commodities are those things that cannot be produced or sourced by man. They are considered to be objects that cannot be resold. It is a common knowledge that the value of an object depends upon the demand for it and the supply of it.
In case of commodities there is a demand for them and supply of them. While the supply is less in case of the commodities like gold and silver, they are high in the case of the commodities like rice and wheat. However, it is not necessary that the value of gold and silver will go up to a higher level than the supply. Though demand for these commodities may be high but there is a supply of them that will not change in the case of gold and silver.
If the supply goes up in the form of the commodities, then the demand for them will go down. When this happens, then the prices will also go down. In this way, the value of commodities goes up as well as the prices.
According to the theories of economics, there should be some link between the price of a product and its value. If this is not so, then there is nothing to indicate that there should be a demand for any particular product. So this means that the supply of a particular commodity should be equal to the demand for it.
In case of the history of commodity trading, the demand for the commodities depends on the type of economy that prevails. In the case of commodity trading, there is some form of demand for some commodities only because of the region where the products are being procured.