What is a Commodity Market?
Indian commodity market facilitates the trading in diverse commodities. It may be a derivative or a spot market. In the spot market, commodities are traded for the immediate delivery, whereas in the derivatives market, several financial instruments based on the commodities are traded. These economic instruments as like ‘futures’ are traded on the exchanges.
A commodity futures agreement is a contract between two parties to trade the commodity at an upcoming or future date at today`s future rate. The future agreement differs from the frontward contracts in the intellect that they are standardized and exchange traded. In other words, the main parties to the agreements do not choose the terms of the futures contracts; but they simply accept the terms standardized by the commodity Exchange.
The commodity futures trading market was very much, there in prior times in the India. In fact, it was one of the most vibrant marketplaces till the early 70s. But due to many restrictions the marketplace could not expand further. Now that mainly of these restrictions have been detached, there is huge scope for the development & growth of the commodity futures trading market in the country.
Just as SEBI rules & regulates the stock market, Forward Markets Commission (FMC) regulates the commodity market.
Which are the most important commodity exchanges in the India?
- Multi Commodity Exchange of India Ltd, Mumbai (MCX)
MCX is a self-governing multi commodity exchange. MCX Tips, features and services amongst the world`s top 3 bullion exchanges and top 4 energy exchanges. It is a key shareholders are State Bank of India, Financial Technologies (I) Ltd., And it`s nearest associates, National Stock Exchange of India Ltd. (NSE), National Bank for Agriculture and Rural Development (NABARD), FID Fund (Mauritius) Ltd. – An affiliate of the Fidelity International, Corporation Bank, Canara Bank, Bank of India, Union Bank of India, Bank of Baroda, HDFC Bank & SBI Life Insurance Co. Ltd.
- National Commodity and Derivative Exchange, Mumbai (NCDEX)
A consortium of the institutions promotes NCDEX. These involve the ICICI Bank Limited, National Bank for Agriculture and Rural Development (NABARD), Life Insurance Corporation of India (LIC) and National Stock Exchange of India Limited (NSE). The borke can provide very efficient NCDEX Tips for trading purpose.
- National Multi Commodity Exchange of India Ltd, Ahmadabad (NMCE)
It is the primary de-metalized electronic multi-commodity Exchange of the India. Some of its input promoters are National Agricultural Co Operative Marketing Federation of India Limited (NAFED), Central Warehousing Corporation (CWC), Punjab National Bank (PNB) and Gujarat Agro Industries Corporation Limited (GAIC).
- National Spot Exchange Limited (NSEL)
National Spot Exchange Ltd (NSEL) is a state of the art electronic, demutualised commodity spot marketplace. The Exchange is supported by National Agricultural Cooperative Marketing Federation of India Limited (NAFED), Financial Technologies (India) Ltd (FTIL). It gives an electronic, transparent, well managed and centralized trading proposal with the facility to obtain and participate in the commodity market remotely.
Invest in Commodities?
- Transparency & Fair Price Discovery: Trading in the commodity futures is transparent and a procedure of fair rate discovery is assured through large scale participation. The big participation is also imitated views & expectations of a wider area section of the people concerned with that commodity. The online Platform: Traders, producers and processors, exporters or importers get an online Commodity Tips and way through MCX / NCDEX for rate risk management.
- Hedging: It gives a platform for the producers to hedge their locations according to their experience in the physical commodity.
- No Insider Trading: The dealing in the commodities is free from the evils of the insider trading. As well, there are no company exact risks as those seen in the stock markets.
- Simple Economics: The commodity market trading is concerning the simple economics of the demand & supply. Much more the demand for a commodity senior is its rate and vice versa.
- Trade on Low Margin: The Commodity Futures traders are necessary to deposit the low margins, roughly 5% to 10% of the total worth of the agreement, much lower compared to further asset classes. The very low margin, which again differs across exchanges and commodities, facilitates the captivating of big positions at lower assets.
- Seasonality Patterns: Quite often give clues to both long and short term players.
- No Counter Party Risk: Greatly like the stock exchanges in the equity market, the commodity Futures market have clearing homes, which assure that the terms of the agreements are fulfilled, thereby removing the counter party risk.
- Wide Participation: The appearance of the online trading would allow growth in the commodity marketplace, much more akin to the one seen in the stock or equity market. It would also make sure bringing the marketplace closer to both, the consumer and the trader.
- Evolved Pricing: The go up in participation would reduce the risk of cartelization, ensuring a holistic vision on the commodity. Hence, the rating would be more sensible and less irrational important to Fair rate Discovery Mechanism.
Who invests in commodities?
Producers / Farmers.
Importers / Exporters.
Agricultural credit providing agencies.
Hedgers, speculators, arbitrageurs.
Large scale consumers. For e.g. Refiners, jewelers, textile mills
Corporate having risk exposure in commodities.
Players in the Commodity Markets:
When someone buys or sells the commodities by just predicting the trading market movement in the future, he becomes the Speculator. The rate may or may not go upward.
Hedging is a method by which the clients in the physical/cash markets can wrap their rate risk. Theoretically, the connection between the futures & cash rates is determined by the charge to carry. The two rates therefore move in the tandem. This enables the clients in the physical or cash markets to cover their rate risk by taking conflicting position in the futures market.
Arbitraging is first and foremost done in two dissimilar ways to make income from the futures market. The trade goods in two dissimilar markets so that the vending price is superior than the purchasing rate by more than the business transaction cost, thus enabling a someone to make the risk very less profits, OR trade in the commodity spot market and sale & purchase in the commodity futures markets, so that the vending price is higher than the purchasing price by more than the business transaction cost & the interest cost, once more resulting in the risk-less profits.
|Commodity Futures||Equity Futures|
|Exchanges||NCDEX, MCX, NSEL||BSE, NSE|
|Assets||Metals, Energy & Agro Commodities||Stocks|
|Sales Tax||Applicable||Not Applicable|
|Delivery||Physical / Cash Settlement||Cash Settlement|
|Quality Applicable||Not Applicable||Applicable|
|Working Days||Mon to Sat||Mon to Fri|
|Timing||10 am – 11.55 pm10 am – 2.00 pm (SAT)||9 am – 3.30 pm|
What are the Tradable commodities?
Bullion Gold and Silver
|Oil & Oilseeds||Castor Seeds, Castor Oil, Soy Seeds, Refined Soy Oil, Crude Palm Oil, Soy meal, Groundnut Oil, Mustard Seed, Cottonseed Oil-cake, Mustard Seed Oil, Cottonseed.|
|Spices||Pepper, Jeera, Turmeric, Red Chilli, Cardamom.|
|Metals||Steel Long, Copper, Steel Flat, Nickel, Steel, Tin, Aluminum Zinc ingots.|
|Fiber||Kappas, Medium Staple Cotton, Long Staple Cotton,.|
|Pulses||Chana, Yellow Peas, Urad, Tur, Yellow Peas.|
|Grains||Rice, Wheat, Basmati Rice, Maize, Sarbati Rice, Jeera.|
|Energy||Crude Oil, Brent Crude, Natural Gas.|
|Others||Rubber, Guar gum, Guar Seed, Cashew, Cashew Sugar, Gur, Kernel, Coffee, Silk, Sugar.|