Skillsfirst Level 5 Diploma in Financial Trading (RQF) - Module 1 - Trading Introduction
Skillsfirst Level 5 Diploma in Financial Trading (RQF) - Module 2 - Financial Products
Skillsfirst Level 5 Diploma in Financial Trading (RQF) - Module 3 - Economic Principles
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EARLY HISTORY OF COMMODITY MARKETS

Commodity markets in a crude early form are believed to have originated in Sumeria where small baked clay tokens in the shape of sheep or goats were used in trade. A certain number of such tokens were sealed in clay vessels, with that number written on the outside and they represented a promise to deliver that number. This made them a form of commodity money – more than an “I.O.U.” but less than a guarantee by a nation-state or bank. However, they were also known to contain promises of time and date of delivery – this made them like a modern commodity contract.

Regardless of the details, it was only possible to verify the number of tokens inside by shaking the vessel or breaking it. At which point, the number or terms written on the outside originally became subject to doubt. Eventually the tokens disappeared, but the contracts remained on flat tablets. This represented the first system of commodity accounting. However, the commodity status of living things is always subject to doubt – it was hard to validate the health or existence of sheep or goats. Excuses for non-delivery were not unknown, and there have been Sumerian letters recovered that complain of sickly goats, sheep that had already been fleeced, etc.

If a seller’s reputation was good, individual “backers” or “bankers” could decide to take the risk of “clearing” a trade. The observation that trust is always required between market participants later led to credit money. But until relatively modern times, communication and credit were primitive. Classical civilizations built complex global markets trading gold or silver for spices, cloth, wood and weapons, most of which had standards of quality and timeliness. Considering the many hazards of climate, piracy and theft along the trade routes, it was a major focus of these civilizations to keep markets open and trading in these scarce commodities.

Reputation and clearing became central concerns, and the states which could handle them most effectively became very powerful empires, trusted by many people to manage and mediate trade and commerce. Markets for trading commodities can be very efficient, particularly if the division into pools matches demand segments. These markets will quickly respond to changes in supply and demand to find an equilibrium between price and quantity.

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