What is COMEX and how does it work

COMEX is much more than just a trading floor; it is a vital component of the global commodities market. It facilitates the exchange of futures and options contracts for various precious and base metals, providing a standardised and regulated environment where producers, consumers and investors can manage price risk, speculate on market moves and gain exposure to the underlying assets. But what exactly is COMEX, and how does this intricate marketplace operate to influence global commodity prices?

What does COMEX stand for?

COMEX is an acronym for the Commodity Exchange Inc. Its origins trace back to 1933 in New York, born from the merger of several smaller exchanges, including the National Metal Exchange, the Rubber Exchange of New York, the National Raw Silk Exchange and the New York Hide Exchange.

This consolidation laid the groundwork for what would become the premier marketplace for metals trading. In 1994, COMEX merged with the New York Mercantile Exchange (NYMEX), and both are now part of the CME Group, the world’s leading derivatives marketplace.

How does COMEX work?

The core of how COMEX works lies in the trading of futures contracts. A futures contract is a legally binding agreement to buy or sell a specified quantity of a commodity at a predetermined price at a future date. These contracts are highly standardised, defining the quality, quantity, and delivery terms of the underlying commodity.

Participants on COMEX don’t typically exchange physical metals directly. Instead, they trade these COMEX futures contracts, which represent an obligation or right to buy or sell the commodity. The vast majority of these contracts are settled financially, meaning traders offset their positions before the contract expires, profiting or losing based on price fluctuations. While physical delivery is an option, it occurs in less than 1% of overall trades. This ‘paper’ trading allows for high liquidity and efficient price discovery.

Trading on COMEX occurs through two primary mechanisms:

Electronic trading: the majority of trading takes place on the CME Globex electronic trading platform, offering speed, accessibility and cost-efficiency.
Open outcry: while less prevalent now, open outcry trading in a physical trading pit still exists for certain contracts during specific hours, allowing traders to communicate directly and negotiate prices.

Contracts for difference (CFDs) are also a type of derivative instrument, where traders do not need to own the underlying asset to trade it.

Learn more about CFD trading with us.

Can I buy gold on COMEX?

While you can technically take delivery of physical gold through COMEX futures contracts, it isn’t the typical way individual investors acquire bullion. COMEX is primarily a derivatives market for price exposure and risk management. If your goal is to own physical gold, it is generally more practical and direct to purchase gold bars or coins from reputable bullion dealers.

However, individual investors can participate in gold and other metal markets on COMEX through futures and options contracts. For this, you must open a trading account with a broker that provides access to the commodity markets. Open a demo account with Capital.com to practice trading metals and other commodities.

Who owns and controls COMEX?

COMEX is a division of CME Group, which is the world’s largest commodity exchange operator. The CME Group is a publicly traded company (NASDAQ: CME) and it has many exchanges within it. These are: Chicago Mercantile Exchange (CME), Chicago Board of Trade (CBOT) and New York Mercantile Exchange (NYMEX). The NYMEX includes COMEX. CME Group’s massive infrastructure and market reach gives COMEX a strong position in derivatives trading.

COMEX is regulated by the US Commodity Futures Trading Commission (CFTC). The CFTC is an independent agency that regulates the US futures and options markets. Its aim is to prevent large players from manipulating prices and protecting smaller market participants. This regulatory framework provides more transparency and fairness for traders and investors.

Learn more about the various methods of commodities trading with Capital.com.

Why is COMEX important for the commodities market?

Did you know COMEX is the world’s largest clearing house for gold? Let’s look at its role in the global commodities market:

Price discovery

The active trading of COMEX futures helps establish benchmark prices for gold, silver, copper and other metals. These prices serve as a crucial reference point for producers, consumers and investors worldwide, influencing everything from mining operations to manufacturing costs.

Risk management

Businesses that have high exposure to metals, such as mining companies or jewellery manufacturers, use COMEX futures to hedge their risk. Traders can also manage their risk by opening positions in uncorrelated metals.

Liquidity

COMEX is one of the most liquid metals exchanges in the world, with hundreds of thousands of contracts executed daily. This high liquidity ensures that buyers and sellers can easily find counterparties, facilitating efficient trading and minimising slippage.

Market transparency: the regulated environment and real-time dissemination of price data provide transparency, allowing participants to make informed decisions.
Global influence: COMEX trading activity and its resulting prices have a significant impact on the global metal markets, influencing supply and demand dynamics across continents.

Stay updated on the latest commodities news to make informed trading decisions.

What time does COMEX open?

COMEX offers both regular and extended trading hours to accommodate a global audience. The regular trading hours typically run from 12:30pm to 5:30pm UTC, Monday through Friday. This is when the market experiences its highest liquidity.

Electronic trading on the CME Globex platform is available almost continuously, beginning at 10:00pm UTC on Sunday and continuing until 9:00pm UTC on Friday, with a brief one-hour break each day from 9:00pm to 10:00pm UTC. This extended window allows traders to react to global economic news that occurs outside of traditional market hours.

Conclusion

COMEX stands as a cornerstone of the global commodities market, particularly for precious and base metals. Its robust framework for futures trading enables effective price discovery, offers crucial risk management tools and provides immense liquidity to market participants worldwide.

Ready to explore the world of commodity trading? Create an account with Capital.com today.

FAQs

What is COMEX?

COMEX is the Commodity Exchange Inc., a leading derivatives exchange for trading futures and options contracts on precious and base metals. A division of the CME Group, it serves as a primary hub for price discovery and risk management in the global metals market.

How does COMEX trading work?

COMEX trading primarily involves buying and selling futures contracts, which are agreements to trade a commodity at a future date and price. Most contracts are financially settled rather than through physical delivery, allowing participants to speculate on price movements or hedge against risk.

Can individual investors trade on COMEX?

Yes, individual investors can trade on the exchange by opening a trading account that offers access to commodity futures and options. However, it’s crucial to have a strong understanding of the market, as futures trading involves significant leverage and risk.

What are the main commodities traded on COMEX?

The main commodities traded on COMEX include gold, silver, copper and aluminium. Other metals like palladium and platinum are also actively traded.

How does COMEX impact commodity prices?

The large trading volumes and liquidity on the exchange help establish benchmark prices that influence the global markets. It also enables hedging, which can help stabilise prices by allowing participants to manage their price risk.