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What is a Commodity?
The term 'commodity' includes all
kinds of goods. FCRA defines 'goods' as 'every kind of movable property other than
actionable claims, money and securities'. Futures' trading is organized in such
goods or commodities as are permitted by the Central Government. At present, all
goods and products of agricultural (including plantation), mineral and fossil origin
is allowed for futures trading under the auspices of the commodity exchanges recognized
under the FCRA. The national commodity exchanges have been recognized by the Central
Government for organizing trading in all permissible commodities which include precious
(gold and silver) and non-ferrous metals; cereals and pulses; raw jute and jute
goods; sugar, gur, potatoes, coffee, rubber and spices, etc
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What are commodity futures?
Commodity Futures are contracts
to buy specific quantity of a particular commodity at a future date. It is similar
to the Index futures and Stock futures but the underlying happens to be commodities
instead of Stocks and Indices.
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Who are the players in the Commodity Market?
Investors in the commodities market
fall into the following categories:
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Hedgers: Hedgers enter into commodity contracts to be assured access to a
commodity, or the ability to sell it, at a guaranteed price. They use futures to
protect themselves against unanticipated fluctuations in the commodity's price.
Speculators: Speculators are participants who wish to bet on future movements
in the price of an asset. Individuals, willing to absorb risk, trade in commodity
futures as speculators. Speculating in commodity futures is not for people who are
averse to risk. Unforeseen forces like weather can affect supply and demand, and
send commodity prices up or down very rapidly. As a result of this leveraged speculative
position, they increase the potential for large gains as well as large losses.
Arbitrageur: A type of investor who attempts to profit from price inefficiencies
in the market by making simultaneous trades that offset each other and capture risk-free
profits. Arbitrageurs constitute a group of participants who lock themselves in
a risk-less profit by simultaneously entering into transactions in two or more contracts
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HOW DO COMMODITY PRICES MOVE?
The following factors have an impact
the commodity prices:
• Demand & Supply
• Natural Factors: Soil and climatic conditions, natural calamities etc.
• Government Policies - e.g. EXIM Policies like tariff rates, minimum support prices
• Annual production, consumption and carry-over quantity of stocks
• Economic policies and conditions:
• Interest Rates - e.g. hike in federal rates bring down the dollar, thereby increasing
lucrative-ness of investment in precious metals.
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Indian Commodity Market
• Supply – Worlds leading producer
of 17 Agri Commodities
• Demand – Worlds , major market of Bullion, Foodgrains, Edible oils, Fibers, Spicies
and plantation crops.
• GDP Driver – Predominantly an AGRARIAN Economy
• Captive Market – Agro products produced and consumed locally
• Width and Spread – Over 30 major markets and 5500 Mandies
• Waiting to Explode – Value of production around Rs. 3,00,000 crore and expected
futures market potential around Rs. 30,00,000 crore.
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Who regulates the Indian Commodity Future Market ?
Just as SEBI regulates the stock
exchanges, commodity exchanges are regulated by the Forwards Market Commission (FMC),
which comes under the purview of the Ministry of Food, Agriculture and Public Distribution
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What are the major commodity exchanges?
• Multi-Commodity Exchange of India
Ltd, Mumbai (MCX).
• National Commodity and Derivatives Exchange of India, Mumbai (NCDEX).
• National Multi Commodity Exchange, Ahemdabad (NMCE).
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What are the commodity derivatives market timings?
Monday to Friday: 10 am to 11.30
pm (Agri-commodities up to 5 p.m. only) Saturday: 10 am to 2 pm
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Is delivery of commodities available? Is it compulsory?
Yes, but its not compulsory, buyers
and sellers intending to take/give delivery should express their intention to the
exchange. The exchange will match delivery randomly and assign it accordingly.
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Useful Links:
• http://www.kitco.com.
• http://www.basemetals.com.
• http://www.thebulliondesk.com.
• http://www.agriwatch.com.
• http://www.commoditiescontrol.com.
• http://www.agricoop.nic.in.
• http://www.fmc.gov.in.
• http://www.wtrg.com.
• http://www.gold.org.
•http://www.bloomberg.com.
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Please carefully read the risk disclosure document as prescribed by SEBI & FMC and
Do’s & Don’ts by NCDEX
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