Understand Fungibility In The Commodities Market

 

Traders who are just starting to trade in the commodities market need to be aware of a few terminologies that are commonly used in this market. One such term and also one that is commonly used is fungibility.

Fungibility

Fungibility is the way in which a specific asset is interchangeable with an asset of the similar type. Read the BTC Profit review. This means that if you buy one barrel of crude oil says from one oil producing country then it is worth the same as buying one barrel of crude oil from some other country. Both these products trade in the same commodities market and are priced similarly even if these are actually produced from different sources. With this property, it is much easier for the exchanges to standardize the prices of the commodities.

Without the commodities market being fungible it would be impossible to trade on them. Trading in the common exchange would not have been possible without this aspect, and this would have in turn limited the assets that could be traded by the speculative traders in the commodity market. Without the feature of fungibility, the commodities market would have not even existed.

Which are the fungible commodity assets?

There are many kinds of assets that are considered to be fungible. These include hard commodities like gold and oil as well as soft commodities like grains.

This categorization is important because it helps the commodity traders to frame strategies and it allows the trader to gauge what are the environmental and financial factors that are going to impact their portfolio. Knowing what the factors that affect it are can increase the probability of profitable trades.

There could be arguments about the soft commodities are fungible but these differences do not count when trading commodities at least when it comes to the valuations in the market. This is because if there is standardization it makes it much easy for the speculators to trade in the market.

Fungibility and the market

Fungibility is an important part of commodities and it allows standardization in the process and this also gives access to raw material all across the globe. This is thus a very important aspect to be considered if you wish to trade the commodity markets actively.

Fungibility helps to eliminate any difference in the products traded globally and the market prices are determined by the change in demand and supply of these commodities.