A place where commodities are traded is a “Commodity
Market”. This is one of the oldest prevailing markets in human history. Trading
in commodity market is similar to equity market. Equities or shares are traded
in Equity market and commodities or instruments backed by physical commodities
are traded in the commodity market. These commodities are broadly classified
into the following:
1.
Soft Commodities: Cocoa, Sugar, Coffee etc.
2.
Energy: Gasoline, Natural Gas, Crude Oil etc.
3.
Live Stock: Pork Bellies Live Cattle etc.
4.
Agro Based: Cotton, Oils, Corn, Wheat etc.
5.
Precious Metals: Platinum, Silver, Gold etc.
6.
Other Metals: Aluminum, Copper, Nickel etc.
Commodities market can be classified is in two distinct
types – the exchange based market and the Over the Counter (OTC) market. The
exchange traded markets are similar to equity derivatives in their working
while OTC markets are localized for specific commodities. In the developed
markets across the world, the volumes on equity markets are less than that of
the exchange based commodity derivatives markets. Following are the approved
commodity exchanges in India:
1.
Multi Commodity Exchange of India Ltd (MCX).
2.
National Commodity and Derivatives Exchange Ltd
(NCDEX).
3.
National Board of Trade (NBOT).
4.
National Multi Commodity Exchange (NMCE).
Wider reach of exchange ensures greater participation and
thus it provides more efficient price discovery mechanism. Futures
contract facilitates the activities of arbitrage, speculation and hedging to
all class of investors.
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