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What does a Commercial Trader do?

By Christine Hudson
Updated: May 17, 2024
Views: 2,476
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A commercial trader is a person who makes his living buying and selling commodity futures. The traders buy and sell these futures based on the price of the commodity in question and the direction in which it is likely to head. For example, if a commercial trader felt that the price of oil was going to go up, he would purchase oil futures so that he could later sell the contracts for a profit.

As the futures contracts represent a fixed price to be paid for a fixed quantity of a commodity, the trader would make a profit equivalent to the difference between the price he paid for the contracts and the price he was able to sell them for. Commodities can cover various items, including agricultural products such as corn, soybeans, and sugar. They can also involve foreign currencies and even commodities like oil.

Commercial traders often come to their profession through a variety of paths. Some spend time working for a board of exchange in various positions, while others spend years studying economics and markets before they can make a successful entry into the workforce. Others may start out as one type of investor or junior trader and work their way into the field as they gain knowledge and experience. Commercial traders use a variety of tools to accomplish their tasks, often focusing on custom-coded software to execute their orders and bids and keep them up to date with the market.

Often, a good commercial trader relies on little more than intuition, while another trader may find success through extensive market analysis and research. Some focus on trends as opposed to individual prices, predicting not that the price of a commodity will rise, but that the general direction of the price of the commodity will trend upwards or downwards. These contracts are called “derivatives” and can prove very lucrative for the seasoned investor. In fact, there are some traders who make their profits when the commodities they trade go down in price.

A commercial trader may work for himself or be part of a trading firm. Some traders even trade on behalf of other investors, whom they refer to as clients. The investor pays the commercial trader a certain fee to use their money and invest it in a way that returns a profit. This is considered a very good way for both parties to benefit, even if the investor has no knowledge of the market.

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