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AN OVERVIEW OF COMMODITY MARKET IN INDIA

INTRODUCTION

India, a commodity based economy where a large population depends upon

agricultural commodities, but surprisingly has an under develop

commodity market. Here future markets trades in commodity are largely

used as a risk management mechanism on physical commodity itself or

open position in commodity market.

The idea is to learn about the whole commodity market from Indian point

of view. The development and growth have shunted down due various

reasons and numerous restrictions in the early 70s which have resulted

into vibrant market.

WHAT IS COMMODITY MARKET?

A commodity market is a place where trading in commodities takes place.

Mostly commodity market is similar to equity market, but instead of

investing in equity market, we invest in commodity market. Here one buy

or sell commodities instead of equity shares. In short commodity includesall kinds of goods.

In the current scenario all kind of goods i.e agricultural, fossil and minerals

are allowed for commodity trading in Indian market. The National

Commodity Exchange recognized by the Central Government permits

commodities trading. Over the whole world one will find that market exists

for all types of commodities which are known to us. These commodities can

broadly classified into the following:

Precious Metals Gold, Silver, Platinum etc

Other Metals Nickel, Aluminum, Copper, Zinc etc

Agro-Based Commodities Oilseeds, Wheat, Corn, Cotton etc

Energy Crude oil, Gasoline etc.

Now the Government has allowed national commodity exchange to come

up and deal in commodity in the electronic trading environment. These

exchanges are expected to offer nation-wide, order driven, screen basedtrading system to trade. The Forward Markets Commission will regulate

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this system. Consequently four commodity exchanges have been approved

to to commence the business regarding this and they are as follows:

1. Multi Commodity Exchange (MCX) in Mumbai2. National Commodity and Derivatives Exchange Ltd (NCDEX)3. National Board of Trade (NBOT) in Indore4. National Multi Commodity Exchange (NMCE) in Ahmadabad.

The commodities market is one of the fastest-growing areas in the

investment world. And it offers some major advantages over stocks that

you might not have considered before. Recently, commodity market isbooming irrespective of global meltdown and recession. When equity

market is underperforming, this commodity market has given tremendous

returns in gold, silver, zinc and in other metals and agro-products; hence

people have withdrawn their funds from equity market and shifted their

investment in commodity market. Commodity investing was initially

received well only by a few sectors. Such investments were first restricted

to the trade and exchange of commodities meant for regular and day to day

use. However, the awareness in the subsequent stages has brought allsectors into the manifold of commodity investing and has enabled speedy

movements, transfer and transaction of goods and services.