INTRODUCTION
A commodity is a homogenous good traded in bulk on an exchange. It is a product which trades on exchange; it would also include currencies and financial instruments and indexes.
A physical materials such as food, grains, and metals, which are exchanged with another product of the same type, and which investors buy or sell, usually through futures contracts.
The price is based on the supply and demand. Risk is actually the reason exchange trading of the basic agricultural products began. E.g. Farmers risk.
Commodities are divided into two categories -
• Hard commodities- Hard commodities are typically natural resources that must be mined or extracted (crude oil, metals etc.).
• Soft commodities
Soft commodities are agricultural
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The Exchange focuses on providing commodity value chain participants with neutral, secure and transparent trade mechanisms, and formulating quality parameters and trade regulations, in conformity with the regulatory framework. The Exchange has an extensive national reach, with 2000 members, operations through 486,770 trading terminals (including CTCL), spanning over 1879 cities and towns across India. MCX is India’s leading commodity futures exchange with a market share of 84.04 per cent in terms of the value of commodity futures contracts traded in …show more content…
This type of investing dates back to 1848 when the Chicago Board of Trade was established. Initially, the idea behind commodity derivatives was to provide a means of risk protection for farmers. They could promise to sell crops in the future for a pre-arranged price.
Modern commodity derivatives trading is most popular with people outside of the commodities industry. The majority of people who use this investment tool tend to be price speculators. These people usually focus on supply and demand and try to predict whether prices will go up or down. When the prices of a certain commodity move in their favor, they make money. If price moves in the opposite direction, then they lose money.
The buyer of a derivative contract buys the right to exchange a commodity for a certain price at a future date. Although this person is a contract buyer, he may be buying or selling the commodity. He does not have to pay the full value of amount of the commodity that he is investing in. He only needs to pay a small percentage, known as the margin price.
DERIVATIVES
DEFINITION OF