What is Commodity-
Before knowing commodity trading we must know what the meaning of commodity. Reasonably good, materials such as food grains and metals that are not changeable and can buy and sell freely as per the article of commerce. Commodities are categorized in two segments one is soft commodities that includes agriculture products such as wheat, cocoa, sugar and coffee and other is Hard commodities that includes oil, gas, gold.
Now we will understand what commodity trading means. When commodities such as crude oil, natural gas, metals, agriculture products are traded for financial growth or gain that is called commodity trading. There are two ways to trade in commodity market that is spot market and derivative market.
In spot market commodities are buy and sell for immediate delivery while in the case of commodities derivatives market, trading is performed on fundamentals financial principles, like as futures. These futures are traded in the exchanges.
Now what is exchange or commodity exchange? We can say that all commodities are traded under the commodity exchange is a governing body that controls and execute all trading activities so that buyer and seller could be able to trade smoothly. They play an important role while creating agreement between buyer and seller as per rules in futures contract.
India’s leading commodity exchange
There are 25 recognized commodity exchanges in India, Some major are-
•Multi Commodity Exchange of India Ltd. (MCX)
•National Multi Commodity Exchange of India Ltd.(NMCE)
•National Commodity and Derivatives Exchange(NCDEX)
Futures Contract –
Futures contract is defined as a legal agreement between a seller and buyer of commodity for a future at a fixed today’s price on current date. If a client buy a gold future, that means he willing to enter into a contract to purchase a fixed quantity of gold at a future date. The future date is called the expiry date of contract and fixed quantity is called the contract size.