Commodity Trading Guide

Trades begin with access to material: term contracts with producers, tender participation, or spot purchases. Offtake agreements secure volume over time and are often paired with prepayment or financing.

Contract terms follow Incoterms — FOB, CIF, CFR, DAP — which fix where title, cost and risk transfer between seller and buyer.

Value is created by execution: chartering the vessel, securing storage or blending capacity, scheduling loading windows and managing laytime and demurrage.

Operations teams control quality, quantity and documentation. Inspection, certification and bills of lading determine whether the cargo can be financed and delivered against contract.

Flat price exposure is normally hedged with futures or swaps, leaving the trader with basis, quality, timing and freight risk — the exposures the desk is paid to manage.

Credit risk is managed through letters of credit, credit insurance and prepayment structures. Counterparty limits and mark-to-market discipline matter as much as market view.

Transactional trade finance funds a cargo against its own documents and receivables. Borrowing base facilities fund inventory pools. Terms move with interest rates and bank appetite for the commodity.

Brokers match cargoes and vessels, provide market intelligence and arrange terms. In freight and residual products, broker reporting is a primary source of price discovery.