Reviewed by Aug 27, 2020| Updated on
What is Commercial Trader?
A trader can apply to any trader that trades on behalf of an enterprise or institution. The Commodity Futures Trading Commission (CFTC) has a particular classification for commercial traders on the commodities market. It describes them as traders who primarily use the futures market to hedge their business.
Understanding the Commercial Trader
Commercial traders are traders who trade for the benefit of a portfolio managed by an enterprise or institution. The CFTC has a specified classification for commercial traders in the commodity industry, mainly for purposes of monitoring trade. The CFTC publishes a weekly paper, called Traders Commitments (COT), which offers a summary of market operation from commercial and non-commercial traders.
Institutional Commercial Traders
Institutional traders put trades in the interests of the company they were hired to work for. Traders can work for a portfolio management team, placing the businesses for a managed portfolio as directed by the organisation. Portfolios controlled to various strategies need specific trading skills from commercial traders. The managed mutual funds can be eligible for investment to institutional or retail investors. Another type of commercial institution trader places trades to support the firm's revenue and business operations for which they are employed.
Commercial traders are used by corporations to manage business risks, to identify opportunities and to help level down fluctuations in the underlying commodity to stabilise or increase revenues. Institutional, commercial traders, are also used for speculative purposes, such as when an oil company hires traders to purchase and sell oil futures contracts for profit (not hedging), or when a bank has a proprietary trading desk where the sole purpose is to make more money using the money from the bank.