Understanding Indian Commodity Markets and Commodity Trading

A market where goods can be brought and sold is known as a commodity market. Commodities are those goods that are exchanged in any market in the world. Steel, wool, coffee, oil, gold, silver, and other items are all brought and sold in a commodity market. 

Commodity markets are classified into two types. They are for agricultural products and raw products. There are two types of goods available on the market. One type is a hard commodity. These are items that are used for making goods. Another type is soft commodities. They are primarily for initial consumption. Metals and other minerals fall under “hard things.” Agricultural products are soft products. In this article, the Indian goods market has been discussed in detail.  

What are commodity exchanges?

To engage in India’s commodity market, one must know about trading in the exchange of goods. Traders might take up future commodity trading rather than actual delivery of the goods. A futures contract is a commitment to sell or buy a specific commodity at a specific price on a specific date.

India’s national commodities exchange is as follows:

• MCX, i.e., Multi Commodity Exchange of India Ltd.  
• NCDEX, i.e., National Commodities and Derivatives Exchange.
• ICEX, i.e., Indian Commodity Exchange.
• NSE, i.e., National Stock Exchange.
• BSE, i.e., Bombay Stock Exchange. 

What are the timings for the commodity market in India?

Trading goes on throughout the week. But it remains closed on Saturdays and Sundays. It is also closed on days that are declared beforehand by the exchange. The timings for the market are mostly from 9:00 hours to 23:30 hours. 

What goods are traded in the (MCX) Multi Commodity Exchange of India Ltd?

• Agricultural: Castor seeds, black pepper, cardamom, crude oil (palm), rubber, cotton, etc. 
• Energy: Crude oil, natural gas, etc. 
• Bullion: Silver, gold, etc. 
• Base Metal: Aluminum, brass, copper, lead, nickel, zinc, etc. 

What goods are traded in (NCDEX) National Commodities and Derivative Exchange?

• Pulses and cereals: Maize rabi, maize kharif, wheat, barley, paddy, moong, chana, etc.
• Soft commodities: sugar
• Fibres: Guar gum, guar seed, cotton, kappa.
• Spices: Coriander, turmeric, jeera, and pepper.
• Oil seed and oil: Soya bean, refined soya oil, castor seed, refined castor oil, mustard seed, mustard oil, cotton seed oil cake, crude palm oil, etc. 

How is the price fixed in the market?

These are quite different from manufactured goods. Commodity trading is quite similar to trading stocks. This type of shared trading ascertains the real price of the goods. The other goals are evaluating the risk of cost and speculating on the risk of cost. The setup for this kind of trading has been there for quite some time now. 

There are two major exchanges in India. They are the Multi Commodity Exchange of India Ltd. and the National Commodities and Derivatives Exchange. Many exchanges facilitate trading.

There are two groups whose actions affect the market rate. They are:

• Hedgers: These sectors or companies need a sizable number of raw products. They get these products for a reasonable price that is constant. For example, steel is needed by the building industry. Industries can use future commitments as price hedges. This ensures that the need for their steel will be fulfilled at a particular price. This leads to a predictable price pattern, and sectors and manufacturers appreciate this process. This makes planning for the future simple and effective. 
• Speculators– According to the Indian commodities market, speculators do not need any product. These are the people who would be able to make money from a change in the price curve. They mostly trade goods. They buy inexpensive goods and later sell them as the price rises. 

Like stock trading via the internet, commodity trading has also gained popularity in India. Just like the prices of stock change, the prices of goods also change. There are a few main factors that affect the price of goods. They are:

• Demand & supply factor: Depending on the behaviour of the traders and the demand and supply curve affects the pricing. A good supply will tend to increase if its demand is higher than its supply, and vice versa.
• Other factors: There are many such factors, like climate, that tend to affect the price in the commodities market. E.g., the price of woolens, heaters, and other such things would increase only when it was cold outside. Since the demand increases due to an exertional factor, the price also increases for that product. 
• Eco-political factor: The market’s price is greatly impacted by the nation’s economy and politics. E.g., the prices for crude oil get impacted by an economic and political disturbance in one or more Organization of Petroleum Exporting Countries (OPEC). This is because the maximum number of goods are generated by these nations. 
• Speculation: There are times when speculators make their investments depending on whether a goodwill investment will yield a profit or not. The prices of some goods change depending on this. 

What are the benefits of commodity trading?

• It protects against crashing the stock market, inflation, and many other black swan events. 
• Facilities of high leverage are provided. 
• Commodities trading lets investors diversify their portfolios. 
• Due to the recent electronic trading, there is transparency. 

Conclusion

The commodities market is set up the same as any other market. Many goods can be brought to and sold in these markets. It can be done both physically and digitally. The entire article has discussed in detail what is a commodity market and trading. There are many factors on which the price of goods is fixed. If a person is looking for financial help, then “Piramal Finance” is a good personal loan/financing option for buyers. They also have great blogs that can be read by those who are interested.