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What are commodities and commodity markets?
Any goods that are unbranded and traded commonly, such as Gold, Silver, Zinc, Rubber, Pepper, Sugar etc are a few of them.
Basically there are two type of markets, Spot and Future (Derivative) markets. In spot goods / commodity is bought and sold in physical form, whereas in Derivative market there are instruments based on commodity are traded via regularized exchanges.
In India we have two major exchanges which are: MCX (Multi Commodity Exchange) and NCDEX (National Commodity Derivatives Exchange). Brokers get registered with these exchanges and in turn clients with brokers.
I would be writing more about the future markets here. Commodity future is merely an instrument which is traded for a future delivery of commodity. If one buys any commodity in future it then means that we are entering in to a contract to buy a fixed quantity of the commodity at a future date. The purchases happen just the way a stock is been bought in equity markets.
Commodity Markets do have a high leverage, that is one needs less margins to trade then required in derivative markets of equity. Its a market with less manipulations unlike equity, as most of the commodities have their price very highly correlated across different commodity markets in various countries. Markets are almost open from dawn till midnight as they need to match with the world markets too. The trades are settled month on month on cash basis.
A importer or an exporter can make the best use of these markets. They can hedge their particular commodity with trading in derivative markets.
Commodities available for trading
Here are the few available commodities:
- Precious Metals
- Base Metals
- Energy
- Oil and Oil Seed
- Grains and Pulses
- Soft commodities
- Spices and plantation
- Many more are to be added in future
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