A commodity is a product having commercial value that can be bought, sold or produced
A derivative contract is an enforceable agreement whose value is derived from the value of an underlying asset; the underlying asset can be a commodity, precious metal, currency, bond, stock, or, indices of commodities, stocks etc. Four most common examples of derivative instruments are forwards, futures, options and swaps/spreads.
Commodity future is a contract to buy or sell specific commodity, of a specific quality, at a specific price, for a specific future date on the exchange.
A forward contract is a legally enforceable agreement for delivery of goods or the underlying asset on a specific date in future at a price agreed on the date of contract. Under Forward Contracts (Regulation) Act, 1952, all the contracts for delivery of goods, which are settled by payment of money difference or where delivery and payment is made after a period of 11 days, are forward contracts.
Futures Contract is a type of forward contract. Futures are exchange traded contracts to sell or buy standardized financial instruments or physical commodities for delivery on a specified future date at an agreed price. Futures contracts are used generally for protecting against rich of adverse price fluctuation i.e. hedging.
Futures prices evolve from the interaction of bids and offers emanating from all over the country which converge in the trading floor or the trading engine. The bid and offer prices are based on the expectations of prices on the maturity date of the contract of the particular commodity.
As in capital markets, a commodity exchange is an association or a company or any other body corporate that is organizing futures trading in commodities and is registered with FMC (Forward Market Commission). Two major national level commodities exchanges are Multi Commodities Exchange of India (MCX), National Commodities and Derivatives Exchange of India (NCDEX).
Commodity Market in India is regulated by Forward Market Commission (FMC) under the guidance of the Ministry of Consumer Affairs, Food, & Public Distribution.
Yes, Arbitrage is making purchases and sales simultaneously in two different markets to profit from the price differences prevailing in those markets. The factors driving arbitrage are the real or perceived differences in the equilibrium price as determined by supply and demand at various locations.
It is the extra margin imposed by the exchange on the contracts when it enters the concluding. This amount is applicable to all the open positions might be in buy or sell.
Spread is the difference between prices of two futures contracts of the same underlying commodity. Futures market can be a normal market or an inverted market.
Yes – A Contract settlement can take place either through squaring off your position or by cash settlement or physical delivery. To take delivery client would have to inform his broker of the same prior to the start of delivery period. In case of delivery, a warehouse receipt is provided. Delivery is at the option of the seller; a buyer can take delivery only in case of a willing seller.