Posts Tagged ‘commodities’

Why is there a stock exchange in Cleveland?

Wednesday, November 18th, 2009

All publicly traded companies can be bought and sold on one of the many stock exchanges that exist all over the country and the world, but rarely do you hear about any exchanges other than the New York Stock Exchange or NASDAQ. And wait… why do we even need more than one?

Why is there a stock exchange in Cleveland? Well, there isn’t one, but there used to be. Many of the small, regional exchanges that no longer exist were necessary because, without the Internet and computers, it wasn’t possible to buy and sell stocks quickly across vast distances. Today, huge exchanges like the NASDAQ only exist on a computer network – there is no NASDAQ trading floor.

Each different exchange only trades a limited number of companies and can impose rules on the companies it lists, or only allow companies of a certain size or stock price. The NYSE has a minimum share price and share volume so that only big companies can trade, so it’s considered a less risky exchange than say the NASDAQ which doesn’t have those types of restrictions. Exchanges can also only trade specific types of securities. The Chicago Mercantile Exchange (CME) only trades financial and commodity derivatives for example.

Being familiar with the differences between the various exchanges can help you make decisions about investing in companies traded on those exchanges and empower you to have an informed discussion of your investments with your broker or financial advisor.

Spot Price is…

Thursday, August 20th, 2009

The spot price is the current market price of an actual physical commodity. Sometimes this is also called the cash price. The spot price is traded on the spot market, where goods are sold for cash and delivered immediately. So, if you buy a barrel of oil on the spot market for $60, then you will receive the actual barrel of oil as soon as possible.

Is There Any Logic Behind The Price Of Petroleum?

Tuesday, August 18th, 2009

Why does it seem like the pundits are unable to guess what’s going to happen to the price of oil?

  • Since last summer, oil prices have gone from record highs to extreme lows and then doubled again, in swings that don’t seem to be related to market fundamentals – supply and demand.
  • The apparent disconnect between market fundamentals and oil price has reignited the debate about the role of speculators in commodity markets, as governments and investors fear a return to record oil prices in the current economic climate.
  • In contrast to last year, the recent upswing in oil prices is happening in a recession and, therefore, not sustained by high demand. This will almost certainly result in even greater losses for the already struggling automobile and airline industries.

Facts & Figures

  • Compared to last summer’s high of $145 a barrel, oil has increased from only $33 to $70 a barrel in just the past 7 months.
  • Petroleum-based fuel accounts for 1/3 Southwest Airlines’ operating costs.
  • The airline industry is projected to lose $9 billion this year, after losing $10.4 billion last year.

Best Quote

“To call this extreme volatility might be an understatement. Over the past 15 to 18 months, this has been unprecedented. I don’t think it can be easily rationalized.” – Laura Wright, Chief Financial Officer at Southwest Airlines

A Commodity is…

Monday, May 18th, 2009

A commodity is a raw material that’s just like any other raw material. For example, tobacco, rice, petroleum, iron ore and cows are all commodities because they’re basically the same no matter what company “produces” them. iPods and breakfast cereals aren’t commodities because they’re processed and branded. Even though they may use commodities in their production (such as metal and wheat flour), the final product is tied to the success or failure of its particular company.