This is one of the main advantages of trading in commodity futures. You have a full-fledged exchange mechanism. That means; you have standard contract sizes, standard expiry time-tables, comprehensive surveillance systems and foolproof risk management systems. All this reduces the risk of trading in commodities. Contrast this with the market for OTC commodity futures. You do not have a centralized clearing mechanism and no guarantee that trades will be executed and honoured. Secondly, contracts are tailor-made for individual needs and hence it can become illiquid in the absence of the counterparty having a balancing requirement. The commodity exchange mechanism overcomes these basic challenges of the OTC commodity markets.
This is one of the main advantages of trading in commodity futures. You have a full-fledged exchange mechanism. That means; you have standard contract sizes, standard expiry time-tables, comprehensive surveillance systems and foolproof risk management systems. All this reduces the risk of trading in commodities. Contrast this with the market for OTC commodity futures. You do not have a centralized clearing mechanism and no guarantee that trades will be executed and honoured. Secondly, contracts are tailor-made for individual needs and hence it can become illiquid in the absence of the counterparty having a balancing requirement. The commodity exchange mechanism overcomes these basic challenges of the OTC commodity markets.