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What is the Tokyo Commodity Exchange?

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  • Written By: H. Bliss
  • Edited By: W. Everett
  • Last Modified Date: 18 September 2016
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The Tokyo Commodity Exchange (TOCOM) is a commodity futures exchange located in Tokyo, Japan. The Tokyo Commodity Exchange includes many commodities, but generally deals with futures contracts for trades on products like oil, precious metals, and rubber. TOCOM was established in 1984, a non-profit membership organization formed by a merger between the Tokyo Rubber Exchange and the Tokyo Gold Exchange.

A commodity futures exchange can also be called a commodities exchange. This type of exchange deals with futures contracts, which are agreements to make a commodity trade at a designated price on a certain date. Investors make money on these contracts by putting money into a commodity they think will rise in value. On the delivery date, which is the date when the purchase occurs, if the commodity is higher in price than the contracted price, the futures investor turns a profit on the price difference.

Essentially, a commodities exchange is a market for buying and selling commodities. In the investment world, commodities are goods or investments bought and sold on a commodities exchange. Commodities are usually physical goods like fuel, metal or grain, but they can also be financial goods like currency if the financial goods are traded on a commodities exchange. An investor who deals in commodity futures often does so to lock in a low price to protect against cost losses on a commodity needed to conduct her business.

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Those who wish to invest in TOCOM commodities can access the market either by applying for a trade or broker membership to trade directly through the firm, or by making trades through a broker affiliated with the Tokyo Commodity Exchange. Trade or broker members of the exchange must be Japanese-based entities. While broker members can conduct customer trades, meaning they can offer trade access to those without the membership to access the Tokyo Commodity Exchange for direct trades. A trade level TOCOM member can only conduct his own trades, but enjoys the benefit of trading directly with TOCOM.

Associate members, affiliate members and customers must trade through a Tokyo Commodity Exchange broker member. An associate member must be an overseas entity. Affiliate members can either be Japanese or overseas. Affiliate members and associate members must still trade through broker members of the Tokyo Commodity Exchange, but affiliate and associate members have lower margins than customers who opt not to get a membership. In addition to the lower margins, overseas associate members of the Tokyo Commodity Exchange also enjoy lower costs to enter into investments with the organization.

Examples of similar exchange markets in the United States include the Chicago Board of Trade (CBOT) and the Minneapolis Grain Exchange, which deal mainly in trading different types of grain. In Europe, the most popular commodities exchange is a division of the New York Stock Exchange® (NYSE®), NYSE Euronext®. The part of NYSE Euronext® that handles many commodities futures for Europe is NYSE London International Financial Futures and Options Exchange® (LIFFE®).

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