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Commodity Markets

In 2003 the government approved the electronic commodity future trading and which gave rise to three exchanges in India NMCE, NCDEX & MCX. With the establishment of these exchanges the commodity markets in India evolved and started getting good volumes.

At present there are more than 100 commodities future contracts available in the country. We have seen many trends in the commodity markets in which initially when the markets had started the agriculture products were dominating over bullions and metals like 69% over all of them but when the awareness of the market got increased at that time in the current trends Bullions with 45% , Metals with 24% & Energy with 19 %.

Globally, commodity markets have occupied a very important place in the economic growth and progress of countries. The concept of organized trading in commodities evolved in the middle of the 19th century.

Major reforms have been initiated in commodity futures markets in India since the last few years.

Commodities Derivative market has become a new avenue for investors to create wealth. Today, Commodities have evolved as the next best option after equity and bonds for diversifying the portfolio. Based on the fundamentals of demand and supply, Commodities are a separate asset class offering investors, arbitrageurs and speculators immense potential to earn returns. Commodity trading is also used by people who are involved in the business of the same commodities.

Why Commodity Trading?

Diversification

Unlike stocks and bonds, commodities are real assets that exhibit inherent intrinsic value based on their commercial or industrial application. The price movement is not related to the companies related to the stock price of commodity companies. It is directly connected with the policies & economy of the country

As Hedging tool in inflation

Commodity prices are connected with inflation percentage of the country. Prices generally go up when inflation increases. Commodity investments therefore can be used as hedging tool in inflation.

Speculation/investment

Investors can use commodity futures to speculate on the short-term movement of the market

Leverage

Commodity derivatives attract lower margins as compared to equity derivatives. This makes the return on investments more.

Regulated market

Commodity futures trading takes place in a fully regulated and transparent market. The trading is regulated by the Forward Market Commission (FMC). The presence of Exchanges also makes it more regulated.