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Commodity Traders: What They Do, How to Work

A commodity trader buys goods from producers and sells them to buyers, often in other countries. Traders move grain, sugar, salt, timber, metals and chemicals between the places where they are made and the places where they are needed.

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What a trader does

A trader finds a supplier, finds a buyer, agrees both contracts and arranges the transport, the inspection, the insurance and the payment. It earns the difference between the buying and the selling price, and carries the risks in between: a price that moves, a ship that is late, or a cargo that does not meet the quality. Some traders are very large companies; others are small firms that work in one product and one region.

Trader, producer and end user

A producer makes or mines the goods, for example a mill, a farm cooperative or a mine. An end user uses them, for example a flour mill, a steel plant or a builder. A trader sits between them. Buyers who want to save the trader's margin can buy directly from producers; buyers who want a smaller order, a mixed cargo or a quick delivery often prefer a trader.

Examples

Grain traders buy wheat and corn from farms and exporters in the Black Sea, the Americas and Australia and sell to importers in Africa and Asia; see wheat. Sugar traders work with Brazilian and Indian producers, because Brazil alone has about half of world trade; see sugar. Salt traders move road salt, industrial salt and food salt from large producers such as India and Australia; see salt. Plywood traders buy from mills in China, Indonesia and Vietnam and sell to importers such as the United States and Japan; see plywood.

How to check a trader

Ask for the company registration and the address of a real office, a bank reference and references from earlier buyers or sellers. Ask who the producer behind the goods is, because a trader who cannot name its source is a risk. Ask for a sample or a certificate, and agree an independent inspection at loading. A trader that is open about its source and its terms is easier to work with.

Working with traders on Comdity

Traders post sell offers and buy requests like any other company. Check the origin, the port and the delivery term of each listing, and write the final terms into the sales contract; see FOB vs CFR vs CIF and offer and counteroffer. A first deal should be small, paid against documents through a bank.

Margins and risks

A trader earns a margin on each tonne, usually small, and makes money on volume and on speed. It carries the risk of price changes between the buying and the selling date, the risk that a buyer does not pay, and the risk of delays and quality disputes. Good traders reduce these risks with contracts, credit insurance, bank guarantees and agreed shipping dates.

Trader or direct purchase

If you buy often, in large lots, and have the staff to check suppliers, buying direct from the producer can save the margin. If you buy small or mixed lots, need credit or want a supplier who knows the paperwork of your country, a trader is often the better choice. Many buyers use both: a trader for flexibility and a producer for the main supply.

Ready to trade?

Post a sell offer or a buy request, or look at the active listings of the product you need.

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