Commodity Futures Markets

India has a long history of commodity futures trading from more than 125 years. There are several commodity exchanges including Multi Commodity Exchange, the National Commodity and Derivatives Exchange and the National Multi Commodity Exchange. Following are the points that will help you to understand Commodity Futures Trading:

1.       The commodity exchanges and commodity futures contracts are regulated by the government under the Forward Contracts (Regulation) Act, 1952. Since Sept 2015 after FMC was merged with SEBI, SEBI is the regulator of Futures Market.

2.       A commodity includes several goods that are allowed for futures trading under the platform of the commodity exchanges recognized under the FCRA.

3.       A company or an association or any other body corporate organizing futures trading in commodities is termed as “Commodity Exchange”.

4.       Futures contracts is a standardized Forwards contract which is exchange traded and is legal agreement to buy or sell a particular commodity at a Specified future time. There are many types of Futures contracts.

5.       Speculators can benefit from changes in prices with respect to futures contracts that mostly offset before their maturity and therefore scarcely end in deliveries.

6.       Price risk management and price discovery are two major economic functions of a commodity futures market. Price risk management is the backbone of a commodity futuresmarket. The need for Hedging (Price Risk Management) arises from price risks in most commodities.

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Difference between Option and Future Trading

Option trading is where there is no responsibility of buyer to buy or sell a definite asset at a definite price at any time during the trading. If the buyer has the responsibility to buy a specific asset and the seller to sell that asset at a definite future date then it is termed as “Futures Contract”. Participation of investors in futures trade is possible with no upfront cost and premium payment is required for purchasing trade an options position.

The volume of underlying position is another key dissimilarity between options and futures. With respect to futures trade, the underlying position is much bigger and more risky for the inexperienced trader. Increase that is obtained by parties with reference to these two financial tools is the last major difference. The recognition of increase on an option can be done in following three ways:

a)      Work out the Option when it is profound in the money.

b)      Setting opposite position by going to the market.

c)       Waiting until expiry, collecting the difference between strike price and asset price.

Considering future trading, the futures accounts of traders at the end of each trading day are credited with the modifications in value of the stage. Also the futures trade holder can take the reverse position and recognize gains by going to the marketplace.

Founded in 2005, ABans Group has grown from being a trading house to a dynamic and diversified business group. We provide expertise in Broking Services, Merchant Banking, Non-Banking Financial Dealings, Jewellery manufacturing and Realty and Infrastructure.