Basic commodity investment terms

1. Derivative goods

A derivative is a transaction in which a customer buys or sells a number of goods at a specified price. The delivery of goods will be made at a specified time in the future under the signed contract.
Derivative commodity trading investment is a form of investment that generates profits from the price difference of commodities. There are four types of contracts in the commodity trading market:
  • Forward contracts
  • Futures contract
  • Options contract
  • Swap contract

2. Commodity futures contract

Commodity futures are contracts that define the purchase or sale to be traded at a certain point in the future (a specific date).
Commodity futures contracts will be traded on the commodity exchange. Usually, the purpose of the two parties to buy and sell when signing futures contracts is to minimize risks when trading goods, to prevent commodity prices from fluctuating in the future.

3. Deposit futures contracts

An asset that is used to secure the performance of contractual obligations.
To participate in derivative trading, investors need to pay an initial margin (maintenance margin). This is the minimum margin that a customer must deposit into a trading account in accordance with the Vietnam Commodity Exchange (MXV) when opening a position.

4. Long / Short in derivative commodity trading investment

In commodity trading, investors can either Buy or Sell depending on the trend of the market. Since then, the term commodity investment: LONG - SHORT is formed
  • Long is the buyer in the commodity contract
  • Short is the seller in a commodity contract
The above derivative commodity trading investment term is a convenient language tool that reflects the expectations of two parties in commodity futures contracts:
  • Buyer: Expect the price to increase
  • Seller: hope the price will drop

5. Derivative Commodity Exchange

This is where individual Investors and institutional traders trade commodity futures contracts. Currently, in the world, there are 4 derivatives trading floors with many investors and large corporations in the world: CBOT, NYMEX, ICE, and TOCOM.

6. Stock Exchange of derivative goods

In derivative trading investment terms, many Investors still confuse the two concepts of Commodity Exchange and Commodity Exchange.
A Commodity Exchange is a legal entity that provides and maintains a specific place of sale and purchase where investors can trade in goods.

7. Price match deviation

Order matching price is the successful transaction price determined from the result of order matching on the trading system of the Commodity Exchange of Vietnam.

8. Final payment price

The final settlement price is the price determined at the end of the trading day to calculate the daily profit and loss of positions.

9. Position

Open position or position is the total volume of futures contracts in derivative commodity trading, which are contracts that have not been finalized or forwarded.

10. Limit position

Is the maximum number of positions that an Investor is allowed to hold at a time. These positions can be the sum of multiple items or the sum of positions of a traded commodity.
Position restriction is intended to prevent an individual or institutional Investor from holding a large number of commodity futures contracts, affecting the volatility of the trading market.

11. Offset position

Position clearing is the exact confirmation of the number of trading positions and money between the parties to the transaction on the settlement date.

12. Listing date

The first trading date of a qualifying commodity forward contract to be traded on the Commodity Exchange.

13. First Notice Day

This is probably the term commodity investment that is still quite unfamiliar to many Investors. At the same time, many traders still do not understand the definition of this commodity investment term.
The first notice date in a commodity transaction is the first notification date for the physical delivery. This means that before this date individual and institutional investors would need to close their positions if there was no physical delivery. And the Real Forward Investors can continue to hold the position until the delivery date.

14. Step price

Is the smallest difference between the 2 prices. Each futures contract will have a different price step for calculating profit/loss in the trade.