A commodity is a class of assets that is cyclical and exchangeable by nature. It can be categorized as every kind of movable good that can be bought and sold, except for actionable claims and money.
Commodities' trading is considered an interesting option for those investors who wish to diversify from the traditional portfolios of shares, bonds, debentures, etc. and may be easily done through an online commodity trading account.
The Indian commodity market consists of both retail and wholesale markets. It is regulated by Forward Markets Commission (FMC), which facilitates multi-commodity exchanges within and outside the country. Commodity trading is now considered as a good substitutive investment in the country.
The Indian government has made almost all commodities eligible for futures trading. Several national and regional exchanges have been set up to facilitate this for retail investors. The national multi-commodity exchanges operating in India are as follows:
• Multi Commodity Exchange of India Ltd. (MCX)
• National Commodity and Derivatives Exchange Ltd. (NCDEX)
• National Multi-Commodity Exchange of India Ltd.(NMCEIL)
• Indian Commodity Exchange Ltd. (ICSE)
• ACE Derivatives and Commodity Exchange
MCX has become the world's leading exchange when it comes to number of contracts traded in gold and silver futures, second highest in natural gas and third in crude oil.
By nature, all commodity exchanges are unpredictable. Before the prices are arrived at, they reach the masses as well as classes: manufacturers, consumers and even the retail investors. Thus, they bring about lucidity in pricing and aid in risk management.
There are more than 100commodities traded in the commodity futures market, out of which 50 are actively traded. These include bullion, metals, agricultural commodities, energy products, etc.
Despite being a strong and promising economy, India's presence in the global commodity market is not as huge as anticipated. Except for gold, its share in other sectors of the commodity market is not very prominent. India accounts for a minuscule percentage in global oil and copper demands. In agriculture too, the country's contribution to international trade volumes is far less when compared to its huge production base.
However, beginning 2002, the commodities future market in India has witnessed an exponential boom when it comes to mushrooming number of exchanges, expanding number of commodities eligible for derivatives trading as well as the commodities'value in futures trading. The latter surpassed the $1 trillion spot in 2006.
In spite of the fact that the stakes in commodities trading are sky high than ever before, following the sharp surge in earnings and trade volumes in recent years, it is still considered to be at a nascent stage, thus requiring the need for more flexible policies and an aggressive expansion plan with novel ideas.
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