NCDEX – Know All About NCDEX
Why should one trade in commodities?
Not only shares can be traded; various commodities like oil, wheat, soybean, gold, silver, etc. are traded in the commodity market mainly for the purpose of hedging. For example, think of a farmer who is worried about the price fluctuations and feels he would face loss after some time. He enters into a commodity futures contract wherein he agrees to sell his commodity at a specific price at a specific time. By doing so, the farmer tries to reduce his loss. Commodity trading is not meant only for farmers as anybody can trade and make profit. Physical delivery and cash settlement are applicable on commodities. SEBI, the market watchdog is in the process of making physical settlement compulsory in most of the commodities.
Mark to market settlement
When you trade in commodities, you should be aware of mark to market settlement. Every day the prices keep going up or down. On the completion of each trading day, the settlement price of the particular commodity which you are trading is compared with your agreed price. If the settlement price has moved in your favour (i.e. gone up in case you are a seller and gone down in case you are a buyer), the difference in price is credited to your trading account. If the price has not moved in your favour (i.e. gone down in case you are a buyer and gone up in case you are a seller), the difference in the amount is debited from your trading account. This process of adjusting prices on a daily basis is called as mark to market settlement.
Misconceptions about Commodity Market:
1. Only large traders can benefit:
Anybody can start trading in commodities and can earn profit by paying a small margin if proper strategy is followed according to one’s goals and risk appetite.
2. Poor quality of commodities:
Exchanges maintain the quality of commodities by using quality control measures.
3. Commodity trading is very difficult:
Global demand and supply situation drives the commodity market and with gradual experience, anyone can master the art of trading in commodities. Anyone can easily understand how commodity market functions by doing thorough research about commodities and being updated about the market situation.
Benefits of trading in commodity market:
1. Helps in price discovery:
Several factors such as demand and supply, weather conditions, political turmoil, wars, etc. act as input signals for the fluctuation in prices of commodities. One can predict the way the prices of commodities would move by studying these situations.
2. Risk management:
Commodity market is mainly used to manage risks caused due to price fluctuations. Exporters, importers, etc. benefit by trading in commodities.
3. Mitigating risk:
The volatility in prices will impact the farmers to a great extent if they didn’t have the option of mitigating their risk my means of entering into futures contract. Commodity futures help in predicting the future price movement which is a boon to farmers as this can reduce their loss.
Exchanges for commodity trading:
NSE and BSE are well known to all of us as buying and selling of shares happen in these exchanges. There are specific exchanges for trading of commodities as well. MCX and NCDEX are the major commodity exchanges in India.
What is NCDEX?
Agricultural and metal commodities are traded on these exchanges. NCDEX is an expert leader in terms of agricultural commodities. NCDEX full form is National Commodity and Derivatives Exchange Limited. The trading hours in NCDEX is from Mon to Fri between 10 am and 11.30 pm.
Individuals, private limited company, public limited company, etc. can become members in this exchange. Well, now you might have got a clear understanding about NCDEX meaning and also commodity market now.