Commodity market is an essential constituent of the financial markets where a wide variety of products, viz., precious metals, base metals, crude oil, energy, soft commodities and agricultural produce are traded. Commodity trading help investors to hedge their commodity risk, take speculative positions and explore arbitrage opportunities.

Commodity exchanges provide platforms to suit the varied needs of customers. Firstly, they help in price discovery. Secondly, these exchanges allow users to hedge their price risk given the uncertainty of the future. Thirdly, by involving the group of investors and speculators, commodity exchanges provide liquidity and buoyancy to the system.

There are more than 20 recognised commodity future exchanges in India under the purview of the Forwards Markets Commission (FMC). The four exchanges operating at the national level are:

  • Multi-Commodity Exchange (MCX)
  • National Commodities & Derivatives Exchange (NCDEX)
  • National Multi-Commodity Exchange (NMCE)
  • Indian Commodity Exchange Ltd. (ICEX)

There are over 15 regional commodity exchanges in India. The leading regional exchange is the National Board of Trade (NBOT) located at Indore. With the setting up of three multi-commodity exchanges in the country, retail investors can now do commodity online trading without holding physical stocks! Karvy aims at creating opportunities in commodities investment by providing a simple and effective interface reflecting commodity market live streaming, commodity rates, research and knowledge.

Benefits of investments in commodity futures:

  • Leverage: As commodities future trading is done on margins and is less than that of the equity market, it gives the investor greater leverage and thus the ability to generate higher returns.
  • Fewer manipulations: As commodities such as gold and silver are fundamentally global commodities and their prices are highly correlated across the markets in assorted countries, there are fewer manipulations.
  • Diversification: There is better diversification as the returns from commodities market are not directly associated to the price fluctuations in the equity or debt market.
  • Inflation Hedge: As the commodity prices establish price levels and subsequently inflation, investing in commodity futures can act as a hedge against inflation.

Points to remember:

  • Stay updated with latest commodity news in the marke
  • Research plays an advisory role, ‘it is not a mandate’
  • Track client trades and positions
  • Regular communications to client on market updates, commodity prices, client positions and trades executed
  • Periodic confirmations sent to client