Basics of Stock Market - Beginner

What is Commodity Market?

Commodity Market involves trading in precious metals, oil, energy, and spices.

There are many options to access gold and other metals. These include traditional physical holdings, futures contracts, D-mat forms, and ETFs. Correlated markets, such as mining stocks, are also available. Investors of all types will find the right product for them, despite each holding having its advantages and disadvantages.

The trading of commodities futures is a well-established tradition. The Chicago Board of Trade (CBOT) was established in 1848 to facilitate organized trading.

In 1875, the Bombay Cotton Trade Association was established. This was the first significant milestone in India's 150-year history of organized commodity trading. India had a vibrant commodities futures market until it was shut down in 1960 due to war, natural disasters and subsequent shortages.

In 1993, after the introduction of liberalization in 1991, the Government of India established a committee of experts on forward market. It was headed by Prof. K. N. Kabra. In 1994, the committee presented its report recommending the reintroduction and expansion of agricultural commodity coverage. The committee also recommended expanding the market coverage to reduce fluctuations in commodity prices, and to hedge against extreme price volatility.

The Forward Contracts (Regulations) Act, 1952 governs commodities futures contracts and the exchanges in which they trade. The Forward Markets Commission, a division of Ministry of Consumer Affairs and Food and Public Distribution is the regulator.

In 2002, the Government of India allowed the reintroduction of commodity options within India.

  • 1. National Commodity and Derivative Exchange
  • 2. Multi Commodity Exchange
  • 3. National Multi Commodity Exchange O f India

MCX has a market share close to 70% and is India's largest commodity futures exchange. NCDEX is next with a market share around 25%. NMCE has the remaining 5%.

These commodities are traded on the exchange

METALAluminium, Copper, Lead, Nickel, Sponge Iron, Steel Long (Bhavnagar), Steel Long (Govindgarh), Steel Flat, Tin, Zinc
BULLIONGold, Gold HNI and Gold M,, Silver, HNI, Silver M
FIBERCotton L Staples, Cotton M Staples, Cotton S Staples, Cotton Yarns, Kapas
ENERGYBrent Crude Oil, Crude Oil, Furnace Oil, Natural Gas, M. E. Sour Crude Oil
SPICESCardamom and Jeera, Pepper, Red Chilli and Turmeric
PLANTATIONSArecanut, Cashew Kernel and Coffee (Robusta), Rubber
PULSESChana, Masur and Yellow Peas
OIL & OIL SEATEDSCastor Oil and Castor Seeds, Coconut Cake. Coconut Cake. Coconut Oil. Coconut Oil. Coconut Oil. Coconut Oil. Coconut Oil. Coconut Oil. Coconut Oil. Coconut Oil. Mustard Oil. Mustard Seed (Jaipur), Mustard Seed(Sirsa). RBD Palmolein. Refined Soy Oil. Refined Sunflower Oil. Rice Bran DOC. Rice Bran Refined Oil. Sesame Seed. Soymeal. Soy Seeds.

Guargum, Guar Seed, Gurchaku, Mentha Oil, Potato (Agra), Potato (Tarkeshwar), Sugar M-30, Sugar S-30

The benefits of the commodity futures market

1. Price Discovery

Buyers and sellers trade on futures exchanges based on market information. This creates a continuous price discovery mechanism.

2. Hedging:

This strategy is to manage price risk inherent in spot market by taking a similar but opposite position on the futures market in order to protect their business against adverse price changes.

3. Import- Export competitiveness:

Futures market can be used by exporters to hedge their risk and increase their competitiveness. Most international traders are interested in buying forwards. Futures market is an opportunity for exporters to temporarily substitute their actual purchase until they are ready to make a purchase in the physical market.

4. Portfolio Diversification

Commodity investment offers another option that is not as correlated with currency or equity. It could be a great way to diversify your portfolio.


India is a major producer of many commodities. It also has a long history trading commodities and related derivatives. Despite this fact commodity futures markets remain largely underdeveloped. This is due to the large government intervention in agriculture. The fact is that many agricultural commodities are still controlled by the state. Futures trading has only been introduced with strict regulatory controls. If futures markets are to thrive, then it will be up to the market to allow them to do their job and not try to control the prices.

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