Commodity Trading

A guide for Indian Entrepreneurs to understand the business of commodity trading

The concept of Commodity Trading is not new in India. Commodity Trading was very much existent in earlier times in India. In fact it was one the most vibrant forms of markets till the early 70s.

However due to numerous restrictions the Commodity Trading market could not develop further. Recently most of these restrictions have been removed, and therefore this allows for the development and growth of the commodity market in India.

The usefulness of Commodity Trading in futures is that it results in transparent and fair price discovery on account of large-scale participations of entities associated with different value chains. It also reflects views and expectations of a wider section of people who may be related to a particular commodity.

Commodity Trading in futures also provides an effective platform for price risk management to all the segments of players who participate in the Commodity Trading ranging from producers, traders and processors to exporters/importers and end-users of a commodity.

Commodity Trading also provides hedging, trading and arbitrage opportunities to market players. The Forward Markets Commission (FMC) is the regulatory body for Commodity Trading in futures/forward trade in India. The Forward Markets Commission is responsible for regulating and promoting futures trade in commodities.

The FMC has its headquarters in Mumbai and the regional office is located in Kolkata.

There are some 21 commodity exchanges in India. But most of these commodity exchanges are regional, offline and commodity specific. The government has recently allowed four national level multi-commodity exchanges to trade in all permitted commodities.