Commodity futures are a kind of futures market. Futures may also be referred to as forward contracts.
Under a forward contract, the seller is bound to deliver a commodity with certain specifications to the buyer at a set date. Futures can be traded for a wide variety of products, whether in the form of actual commodities or financial instruments.
In the case of commodity futures markets, the commodities concerned are usually agricultural products. Wheat and corn are two of the most common products on which commodity futures markets are based. Mining products like gold and silver may also be involved. These are traded in the same way as products traded in other futures markets. The defining element is that, unlike in the case of currency futures markets or other types of futures markets, there are actual commodities involved in the trade.
Settlement of transactions in the context of a commodity futures market necessitates the delivery of the product or commodity. The specifications of the commodity to be delivered are set in the futures contract. Following these specifications is a requirement for the transaction to be completed. In order to understand the particulars of commodity futures, it may be necessary to refer to the market profiles.