Friday, 21 September 2012

Commodity Market In India

 What is Commodity : A short description.
     A physical substance such as food, grains, and metals, which is interchangeable with another product of the same type, and which investors buy or sell, usually through future contracts. The price of the commodity is subject to supply and demand. Risk is actually the reason exchange trading of the basic agricultural products began.
How It Works:
      More generally, a product which trades on a commodity exchange, this would also include foreign currencies and financial instruments and indexes. The world of commodities is complex, fascinating, and has a profound effect on economies and consumers around the world.

To be considered a commodity, an item must satisfy three conditions:
-- It must be standardized (for agricultural and industrial commodities it must be in a "raw" state).
-- It must be usable (i.e., have a shelf life) upon delivery.
-- Its price must vary enough to justify creating a market for the item.

Trading of Commodity:
       Buyers and sellers can trade a commodity either in the spot market (sometimes called the cash market), whereby the buyer and seller immediately complete their transaction based on current prices, or in the futures market.
               Most buyers and sellers trade commodities on the futures markets because many commodity producers -- particularly those of traditional commodities like grain -- bear the risk of potentially negative price changes when their products are finally ready for the market. Futures contracts, whereby the buyer purchases the obligations to receive a specific quantity of the commodity at a specific date and at a specific price, therefore offer some price stability to commodity producers and commodity users.

Regulation :
       In the year 2003, the Indian Government approved the establishment plan of four commodity exchanges of national level. These national commodity exchanges would operate futures trading contracts for multiple commodities. The Indian Government has included more commodities in the list of permitted commodities, constructed under the Forward Contracts (Regulation) Act.     
           Earlier there was a rule that every spot market transaction has to be completed within 11 days. In order to promote commodity trading, the Government of India has removed this restriction. Indian Government has removed NTSD (Non-Transferable Specific Delivery Contract) option from the Forward Contracts (Regulation) Act.
Commodities Exchanges in India:
      There are three large major national commodity exchanges in India, apart from this there are 18 domestic commodity exchanges.
The 3 major national commodity exchanges are:
·         National Commodity and Derivatives Exchange Limited.
·         Multi Commodity Exchange of India Ltd.
·         National Multi Commodity Exchange of India Ltd.
National Commodity and Derivatives Exchange Limited – NCDEX . Essentially, NCDEX, located in Mumbai, is a public limited company, which was incorporated on 23rd April 23 2003. This was done under the Companies Act, 1956. On 9th May 2003, it was given its Certificate for Commencement of Business, and it started its business operations on 15th December 2003.
This exchange is regulated by the Forward Market Commission with regards to the futures trading in commodities. NCDEX is also subjected to certain laws of the country that include:
·         Companies Act.
·         Stamp Act.
·         Contracts Act.
·         Forward Commission (Regulation) Act
Why It Matters:
      Commodities are the raw materials used by virtually everyone. The orange juice on your breakfast table, the gas in your car, the meat on your dinner plate, and the cotton in your shirt all probably interacted with a commodities exchange at one point. Commodities exchange participants set or at least influence the prices of many goods used by companies and individuals around the globe. Changes in commodity prices can affect entire segments of an economy , and these changes can in turn spur political action (in the form of subsidies, tax changes, or other policy shifts) and social action (in the form of substitution, innovation, or other supply-and-demand activity).
      In general, however, the liquidity and stability of the commodities exchanges helps producers, manufacturers, other companies, and even entire economies operate more efficiently and more competitively.


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