What are various terms involved in commodity trading?

There are many terms that are commonly used in commodity trading, including:

Commodity: A raw material or primary product that is traded on an exchange.


Future: A contract to buy or sell a commodity at a future date at a predetermined price.


Option: A contract that gives the holder the right, but not the obligation, to buy or sell a commodity at a future date at a predetermined price.


Spot price: The current market price of a commodity.


Futures price: The price at which a commodity is expected to be bought or sold at a future date.


Basis: The difference between the spot price and the futures price of a commodity.


Contango: A situation in which the futures price of a commodity is higher than the spot price.


Backwardation: A situation in which the futures price of a commodity is lower than the spot price.


Long position: A position in which a trader has bought a commodity and expects the price to rise.


Short position: A position in which a trader has sold a commodity and expects the price to fall.