An Empirical Investigation of Commodity Trading and Risk Identification: using Hedging and Neutral Risk Assessment Method

Abstract

The uncertainties of the forthcoming markets values and the future incoming are determined by the commodity trading. This is mainly depicted by the flux vacation in the commodity prices. Based on the product, we have hard commodity and soft commodity the trading determines the cash flow of the organization and if risk associated with it has. The retail investors determine the commodity market. This analysis helps us to learn the investor's perfection and their awareness level. This paper deals with the perspective of commodity trading in historic aspects. The regulation and scope of commodity trading risks are to be reduced by hedging and neutral valuation methods. This process shows the various risks associated with gold and its derivative markets. Risk reduction can be done using hedge methods, but can't be eliminated fully. This result in the minimization of variance of the borrowing cost in y-hx and r-square.the another approach is to reduce the impact through utility theory of the risk neutral valuation. Investors save a part and utilizes if in future. The commodity trading outlooks the impact of risk factors identification and reduction methodology, which helps individuals and organization of retails investors to get involved in hard and soft commodity trading.