A Beginner’s Guide to Indian Commodity Futures Markets

What are the main differences between commodity spot and derivatives markets?

There are two types of commodity markets: spot (physical) and derivatives (such as futures, options and swaps).

NCDEX Commodity

In a spot market, a physical commodity is sold or bought at a price negotiated between the buyer and the seller. The spot market involves buying and selling of commodities in cash with immediate delivery. There are spot markets for individual consumers (retail market) and the business-to-business (wholesale market) category. Spot markets also include traditional markets such as Delhi’s Azadpur Mandi that deal in fruits and vegetables. 

UNDERSTANDING COMMODITIES MARKET

What is a commodity?

Commodities are products that can be bought, sold or traded in different kinds of markets. Commodities are the raw materials that are used to create products which are consumed in everyday life around the world, from food products in India to building new homes in Europe or to running cars in the US. 

NCDEX Commodity

                                        There are two main types of commodities: 

                                        Soft commodities – agricultural products such as corn, wheat, coffee,                                                     cocoa, sugar and soy bean; and livestock. 

                                        Hard commodities – natural resources that need to be mined or processed                                             such as crude oil, gold, silver and rubber. 

Throughout history, commodities have played a major role in shaping the global political economy and have affected the lives and livelihoods of people. History is replete with examples of how shortage of critical commodities sparked huge public outcry and social unrest. Of late, the world community is concerned over the environmental and health costs of production and consumption of certain commodities and impact on society.

HOW THIS GUIDE IS ORGANIZED MARKETS

Commodity Market future Guides

Explains the basics of commodity futures markets in a historical and theoretical context. It provides a basic understanding of concepts and terminology related to commodities, derivatives, commodity futures trading, commodity exchanges and market participants. The fictionalization of commodities and its implications are critically examined in this section besides discussion of some of the important scandals in the global commodity markets.

Gold

Specifically deals with issues and concerns related to the Indian commodity futures markets. It examines the policy environment that has shaped the rise of Indian commodity futures markets in the recent times. In particular, instances of frequent manipulation and some recent trading scandals in the Indian commodity futures markets are discussed at length. This section also explores the efficacy of commodity transaction tax and provides policy recommendations to strengthen the regulation and supervision of Indian commodity futures markets.