Commodity trading can be a harsh mistress for those new to the commodity trading game. An easy analogy to consider when starting it is that of how a retailer may manage their stock. So the retailer is sitting on a lot of products that he wants to sell, the specific products are not particularly important for the sake of the analogy. If the retailer is well known then people will want to purchase product from him – maybe he has an excellent track record in regards to price or customer service – what is important is that he is selling something people want from him (especially from him).
This allows the retailer to alter the price so that he can get more money from the consumer. Because people know that the retailer is there and he can give them the product they require (or need – consider want versus need in a marketing sense). Commodity trading works similar to this. Let’s add another twist to the story. Suppose instead of the retailer – we consider the supplier (the person who supplies the retailer with product). The retailer may order a certain amount of products from the supplier but is unable to sell them or doesn’t end up needing them. The supplier can then sell the stock to another retailer.
Commodity trading works like this as well. The retailer holds the stock; however it may not be rushing to sell it. If the supplier wants it back to sell the stock to someone else then the retailer can sell the stock back to the supplier in order to pass it on to another retailer. You are essentially trading something that does not need to be sold immediately. You are sitting on an investment waiting for the right time to sell it. The concept is ridiculously easy to understand; maybe you just need to wait for the right price.