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Summary of Annotations

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commodity may be defined as an article, a product or material that is bought and sold. It can be classified
as every kind of movable property, except Actionable Claims, Money & Securities.

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The commodity derivative market is a direct way to invest in commodities rather than investing in the
companies that trade in those commodities

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. Commodity futures markets allow commercial producers and commercial consumers to offset the risk of
adverse price movements in the commodities that they are selling or buying.

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High co-relation with changes in inflation.

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A good hedge against any downturn in equities or bonds as there is little correlation with equity and bond
markets.

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Bombay Cotton Trade Association Ltd., set up in 1875, was the first organized futures market

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Forward Contracts

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Regulation) Act was enacted in 1952 and the Forwards Markets Commission (FMC) was established in
1953 under the Ministry of Consumer Affairs and Public Distribution. In due course, several other
exchanges were created in the country to trade in diverse commodities.

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Ministry of Consumer Affa


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FMC

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Commodity Exchanges

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Consequently four commodity exchanges have been approved to commence business in this regard. They
are: Multi Commodity Exchange (MCX) located at Mumbai. National Commodity and Derivatives Exchange
Ltd (NCDEX) located at Mumbai. National Board of Trade (NBOT) located at Indore. National Multi
Commodity Exchange (NMCE) located at Ahmedabad.

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Commodities: Coffee, Cocoa, Sugar et

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ive-Stock: Live Cattle, Pork Bellies etc

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Energy: Crude Oil, Natural Gas, Gasoline etc

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ecious Metals: Gold, Silver, Platinum et

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Other

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her Metals: Nickel, Aluminum, Copper etc

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gro-Based Commodities: Wheat, Corn, Cotton, Oils, Oilseeds.

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National Exchanges
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NMC

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MCX

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NCDEX

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Regiona

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Exchange

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l Exchange

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NB

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cts: A futures contract is an agreement for buying or selling for a p

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Commodity futures contrac

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edetermined delivery price at a specific future time.

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ommodity options contracts

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1. Leverage:
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2. Commissio

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3. Liqu

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Liquidity: T

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4. Ability to go short

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5. No time delay: O

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Leverage: Low margin requirements can encour

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encourage poor money management, leading to excessive risk taking. Not only are profits enhanced but
so are loss

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Due to the bulky nature of the underlying assets, physical settlement in commodity derivatives creates the
need for warehousin

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Similarly, the concept of varying quality of asset does not really exist as far as financial underlyings are
concerned. Ho

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However in the case of commodities, the quality of the asset underlying a contract can vary largely. This
becomes a

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of the asset underlying a contract can vary largely. This becomes an im


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s an important issue to be managed