Commercial, in a broad sense, refers to any sort of business activity connected with commerce (for example, selling, purchasing and distributing goods and services) and aimed at gaining profit, while non-commercial activities usually mean charity or government organizations’ activities which main goals aren’t connected with earning profits.
In the broad sense, the word “commercial” is used to describe such concepts as commercial real estate, commercial insurance, commercial driver’s license, in all of which it indicates the relation to the profit gaining activity. To be precise, commercial real estate is always about buildings, lands and facilities used for business purposes. Commercial insurance is aimed at protecting businesses from possible risks. And a commercial driver’s license is required in the US to drive large and heavy vehicles traditionally used in business transportation.
One more common use of the word “commercial” refers to a piece of advertising presented on the TV or radio.
In the financial field, though, “commercial” traditionally indicates a type of trading or a business institution that plays an important role in futures and options markets, because of being closely linked with the hedged positions in those markets. So, the meaning of the word “commercial” is different in this sphere, especially when talking about trading and investing, and it’s necessary to clarify this meaning.
Commercial and non-commercial traders
To understand the meaning of the word “commercial” when talking about trading, let’s look at two groups of traders on future and options markets:
- commercial traders;
- non-commercial traders.
A commercial trader is a company that uses futures and options markets primarily to hedge its core commodity against risks. A commercial trader is usually involved in the industry where the commodity is being put in use. Traditionally, commercial trading activity is done by the companies and organizations that really use the commodity in question in their business at some stage, that’s why it is called commercial in the first place - an organization actually considers the delivery or movement of the commodity it’s trading.
A non-commercial trader, at the same time, doesn’t intent to use the commodity in its business. The main interest of a non-commercial trader is gaining profit on price changing, which also might be called a speculative activity, and there’s no real need in the commodity for the trader’s business.
A company might be a commercial trader for one type of commodity and a non-commercial trader for another one, but it can’t be a commercial and non-commercial trader at the same time for the same type of commodity.
A list of commercial and non-commercial traders is published weekly by the CFTS, which stands for Commodity Futures Trading Commission. This list is important for business and financial analysis and future forecasting, as commercial traders are really interested in their commodities and their activities help to indicate real economic processes, while non-commercial activities help to assess the market movements and clarify the current trends.
One more possible meaning of the word “commercial” in the financial sphere indicates a large size of a company and its significant position in the market. Commercial market participants are large organizations which are opposed by smaller companies and entrepreneurs that are called retail participants in this classification.