COMMODITYrnCommodity is basic good used in commerce that is interchangeable with other commodity of the same type. Commodities are most often used as inputs in the production of other goods or services. The quality of a given commodity may differ slightly, but it is essentially uniform across producers. In other words any good exchanged during commerce, which includes goods traded on a commodity exchange.rnWhen they are traded on an exchange, commodities must also meet specified minimum standards, also known as a basis grade.
rnCOMMODITY TRADINGrnCommodity trading is the market activity, which links the producers of the commodities effectively with their commercial consumers. Commodity trading mainly takes place in the commodity markets where raw or primary products are usually exchanged. The raw commodities here are traded on regulated commodities exchanges, in which they are bought and sold in standardized forms of contracts. In
commodity market , trading can be done in following ways:
Spot tradingrnSpot trading is any transaction where delivery either takes place immediately, or with a minimum lag between the trade and delivery due to technical constraints. Spot trading normally involves visual inspection of the commodity or a sample of the commodity, and is carried out in markets such as wholesale markets.
Forward contractsrnA forward contract is an agreement between two parties to exchange at some fixed future date a given quantity of a commodity for a price defined today. The fixed price today is known as the forward price.
Futures contractsrnA futures contract has the same general features as a forward contract but is transacted through a futures exchange. In essence, a futures contract is a standardized forward contract in which the buyer and the seller accept the terms in regards to product, grade, quantity and location and are only free to negotiate the price.
COMMODITY TRADING IN INDIArnCommodity trading is an interesting option for those who wish to diversify from the customary options like shares, bonds and portfolios. The Government has made almost all commodities permitted for futures trading. Three multi commodity exchanges have been set up in the country to facilitate this for the retail investors. The three national exchanges in India are:
Multi Commodity Exchange (MCX)rnNational Commodity and Derivatives Exchange (NCDEX)rnNational Multi-Commodity Exchange (NMCE)
Commodity trading in India is still requires an aggressive growth plan with innovative ideas. Liberal policies in
commodity trading will definitely boost the commodity trading. The commodities and future market in the country is regulated by Forward Markets commission (FMC).
Indian commodity market can be broadly categorized into two parts:rnWholesale marketrnRetail market
WHOLESALE MARKET
The wholesale market in India, an important component of the Indian commodity market, traditionally includes framers and manufacturers of goods. The lengthy process of wholesalers buying from manufacturers; then selling it to retailers who in turn sell it to consumers does not seem feasible today. An improvement in the transport facility has made the interaction between the retailer and manufacturer easier; the need for a wholesale market is gradually losing ground.
RETAIL MARKET
The retail market in India is currently witnessing a boom. The growth in the India commodity market is largely credited to this boom in the retail market. Liberal government policies have ensured that this sector is growing at a good pace. Some of the reasons attributed to the growth of retail sector in India include the large population of the country who has an increased purchasing power in their hand. Another factor is the heavy inflow of foreign direct investment in this sector. More than 80% of the retail industry in the country is concentrated in large cities.rnTill some months ago, this wouldn't have made sense. Retail investors were not able to
invest in commodities such as gold and silver in the futures market. This was nearly impossible in commodities as there was practically no retail avenue for taking advantage in commodities.
However, with the setting up of three multi-commodity exchanges in the country, retail investors can now trade in commodity futures without having physical stocks.