Dr.

Mayank Tiwari
COMMODITY MARKET Assistant Professor of Law
National Law University Odisha
PREVIOUS DISCUSSIONS
Financial Systems
Components of Financial System: Financial Market, Financial
Products and Financial Institutions
Money Market
Capital Market
Securities Market: Primary Market and Secondary Merket
Functions of the Securities Market
WHAT YOU KNOW ABOUT THE COMMODITY
MARKET
We can trade the Commodity through MCX
We need not to have physical possession of commodities
Stock Value changes according to the current trend of prices in the market
Products like Gold, Crude Oil, Natural Gas etc.
Does not cover the manufactured products
Trading in future contracts
Base Metals, Bullion, Agricultural Produce and Energy
COMMODITY
Commodity is produce of nature

It is the group of goods in form of agricultural produce and non-agricultural produce

Commodity is exchangeable by nature

COMMODITY MARKET
Commodity Market is the place for buying and selling the commodity in physical or virtual
market

Risk and Problems in Physical market: Storage, Authenticity

Only Futures and Options

Commodity Market through Commodity Exchange: MCX, NCDEX etc.

Market for trading in metals, crude oil, natural gas, energy, and spices, among others.
HOW COMMODITY MARKET HELPS
Trading in commodities is great for investors seeking to diversify their portfolio, as
these investments often help with inflation.
Easy availability of Finance
Increase in the Investment in Agricultural Sectors
Helps in ensuring food security
Meet up the challenge of speculations in Spot Market
Hedging
Price Discovery
HISTORICAL DEVELOPMENT
Bombay Trade Association – 1875
Bombay Cotton Exchange Limited – 1893
Gujarati Vyapari Mandli (For Oil Seeds) – 1900
Chamber of Commerce, Hapur (For Wheat Trading) – 1913
Calcutta Hessian Exchange Limited (Jute) – 1919
East India Jute Association Limited – 1927
East India Jute and Hessian Limited – 1945
HISTORICAL DEVELOPMENT
Forward Contract (Regulations) Act, 1952
Forward Markets Commission – 1953
Prof. K.N. Kabra Committee – 1993. It advocate the re-introduction of future and
coverage to agricultural produce. Future market in commodities was discontinued in
1960’s due to natural calamities and war which resulted in shortage.
In 2002, re-introduction of commodities future was allowed
Merged with SEBI in September 2015
Currently SEBI is the regulator
COMMODITY EXCHANGES IN INDIA
Multi Commodity Exchange of India (MCX)
Indian Commodity Exchange (ICEX)
National Commodity and Derivative Exchange (NCDEX)
MCX
NATIONAL COMMODITY AND DERIVATIVE
EXCHANGE (NCDEX)
Leading agricultural commodity exchange in India
Provides for agricultural commodity derivatives market
Permitted commodities aggregating to a total of 23, and includes commodities such
as pulses, spices and guar.
TYPES OF COMMODITIES
Hard Commodities: Non-agricultural items include natural resources eg: Gold, Silver,
Rubber, Oil, Copper, Energy etc.
Traded on MCX – Multi Commodity Exchange

Soft Commodities: Agricultural produce eg: Wheat, sugar, corn , coffee

Traded on NCDEX
HOW TRADING TAKES PLACED?
Selection of a Broker
Opening of Trading Account
Deposit of margin money
Initial Margin money
Mark to market
Trade in Commodity
TYPES OF COMMODITY BEING TRADED
Commodity Spot Market

Forward Market: No guarantee of performance and not regulated. It is the contract

between two parties.

Future Market: Guarantee of performance

Option Market: Right to Buy and Right to sell: Put and Call Option
COMMODITY SPOT MARKET
It is a market where a buyer and a seller for commodities enter
into a contract for immediate delivery of a commodity.

There is no speculation and all transactions will result in delivery

Warehouse Receipt can be considered as sufficient for delivery of

goods
COMMODITY FORWARD MARKET
Buyer and the seller of a commodity will enter into a contract for delivery of a
commodity at a some later date.

Terms regarding date, quantity and price of the commodity contract will be
decided beforehand and the parties to a forward commodity contract will
pay a margin

These contracts are unregulated and hence do not carry the exchange counter
guarantee
COMMODITY FUTURE CONTRACT
The commodity futures contract is the assurance that a trader will buy or sell a certain
amount of their commodity at a pre decided rate at a certain time.
The contract will entail delivery of the commodity at a future data but at terms of
price, date and time decided at the time of contract.
When a trader purchases a futures contract, they are not required to pay the whole
price of the commodity. Instead, they can pay a margin of the cost which is a
predetermined percentage of the original market price.
Lower margins mean one can buy a futures contract for a large amount of a precious
metal like gold by spending only a fraction of the original cost.
OPTION CONTRACT
An option is a derivative contract which gives the buyer (the owner or holder of the
option) the right, but not the obligation, to buy or sell an underlying.
For owning this right, the option holder pays a price (called ‘option premium’) to the
seller of this right.
The seller (writer) of option, on the other hand, bears the obligation to honour the
contract should the buyer choose to exercise the option.
Put Option: gives the holder the right to sell (but not obligation) at a certain price by
certain date (known as expiration date)
Call Option: gives the holder the right to buy (but not obligation) at a certain price
(known as a strike price) by a certain date (known as an expiration)
HOW COMMODITY EXCHANGE WORKS?
REFERENCES
https://www.angelone.in/knowledge-center/commodities-trading/what-is-
commodity-market