Trading in commodities futures has a long history. There is a little throw that futures trading in commodities existed in China 6000 years ago. The first mile stone in the 125 years history of Indian commodity trading was the constitution of the Bombay Cotton. The advance in economic liberalization helped the emphasis for laying commodities trading and by beginning of 2002; there were about 42 commodities with few commodities trading even internationally.
Commodities futures contracts are governed by the Forward Contracts (Regulation) Act, 1952. In 2002 the Government of India allowed commodity futures in India after some gap period with three screens based nation-wide multi-commodity exchange.
- National Commodity & Derivative Exchange: This exchange was originally formed by ICICI Bank, National Stock Exchange (NSE), National Bank of Agricultural and Rural Development (NABARD) and Life Insurance Corporation of India (LIC). Later other institutional shareholders have been joined. NCDEX is most popular for trading in agricultural commodities.
- Multi Commodity Exchange: This exchange was originally prompted by Financial Technologies Limited, a software company in the capital markets space. Same as in NCDEX, other institutions have been added subsequently to MCX. It is most popular for trading in metals and energy contracts.
- National Multi Commodity Exchange of India: This exchange was originally promoted by Kailash Gupta, an Ahmadabad based trader, and Central Warehousing Corporation (CWC). NMCE is said to be traded mostly in spices and plantation crops, especially from Kerala, a southern state of India.
MCX is largest commodity futures exchange in India in term of market share which is about to 70%. NCDEX follows with 25% and NMCE with 5% in terms of market share.
In Commodity trades mostly seen in primary economic sector rather than manufactured products such as soft commodities of agricultural sector like wheat, coffee and sugar and hard commodities of mined like gold and oil. These trades happen with the forecasted economic trends or with the opportunities available in the commodity markets. Oil and Gold are two most common traded commodities and remaining will do their part.
As in the case of Equity futures, Commodity also does trade in futures with an agreement to buy and sell a predetermined amount of a commodity at a specific price on a specific date in the future.
Stepping into commodity market is very simple with opening a commodity account from broker as one open a trading account.