Commodity Trading in India
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The commodity trading in India has become very popular among the traders and retail investors in the recent times. The commodity derivatives constitute an important part of the commodity futures trading in the Indian financial market. The commodity derivatives are preferred for the reason that they provide the investors with a better opportunity of diversifying their portfolios in addition to what the bonds, shares, and real estates offer.
The concept commodity trading in futures market has been put in use very recently in the Indian market. It was in the year 2003 that the Government of India took the first major initiative towards setting up multi-commodity exchanges across the nation. In the same year the government also expanded the list of commodities that can be traded under the Forward Contracts (Regulation) Act, 1952. The policy initiatives to establish multi-commodity exchanges at the national level were aimed to make the commodity trading in India more cost effective and develop the system of risk management to ensure financial integrity.
Commodity trading through future contracting has been beneficial for the Indian economy in a number of ways. Commodity trading in futures market comes in handy to minimize the risks arising out of fluctuations in demand and supple conditions. It also helps to preserve the benefits derived from profitable economic activities.
The multi-commodity exchanges have been quite helpful for the Indian retailers, because these national level exchanges enable them to carry out commodity trading through futures contract even when they do not have any physical stock of the same.
In the financial year 2002-2003, the volume of commodity trading in India recorded a significant increase. The total value of commodity exchanges in 2002-2003 amounted to around US$ 23391.8 millions, while the corresponding figure in the 2001-2002 fiscal stood at US$ 8070.17 millions. The commodities that are mostly traded through commodity exchanges in India include jute, castor seed, pepper, oilseed complex, and soybean complex.
The Multi Commodity Exchange of India Ltd, the National Multi Commodity Exchange of India Ltd and the National Commodity and Derivative Exchange are the three multi-commodity exchanges that are functional in India. All these three exchanges make use of electronic settlement and trading systems to ensure secured and hassle-free commodity trading.
To participate in the commodity futures trading, the traders and retail investors need to take the help of the registered equity brokers of the respective exchanges. The ISJ Comdesk (ISJ Securities), Refco Sify Securities, Sunidhi Consultancy, and ICICIcommtrade (ICICIdirect) are some of the well-known brokers that operate in the commodity exchanges of India. Both cash-settled and delivery mechanisms can be used for commodity trading in India.
It is very simple to start trading in the multi-commodity exchanges of India. The traders just need to have a separate bank account for the purpose. A commodity demat account with the National Securities Depository Limited is all that is required to initiate commodity trading in the National Commodity and Derivative Exchange of India.
