A commodity exchange is a place where various commodities and derivatives are bought and sold. Commodities exchanges usually trade on commodity futures.
Hedging: Commodities are subject to constant and extreme price fluctuations. Traders are the worst sufferers of the price risk. Forward contracts have come to their rescue.
A forward contract requires a buyer and a seller to take and make a delivery of a definite quantity of a particular commodity at a future specified date. Such contracts are traded on an exchange, which provides guarantee for all futures dealings, and parties can "hedge" at suitable levels. Hedging lessens risk since it involves the purchase or sale of a commodity with the intention of counterbalancing the profit or loss of another investment. Therefore, any loss on the previous investment will be hedged, or compensated, by a matching profit from the hedging instrument.
Speculating: Speculators are people who are prepared to bear risks in anticipation of earning profits. Markets are granted liquidity by speculators and it is hard to conceive of a futures market devoid of speculators.
Arbitrage: Arbitrage involves buying a commodity at a low price and instantly selling it for a higher price in another market. Thus, traders can profit from arbitrage opportunities occurring due to price differences between two exchanges.
Shifting of Risk: The minute a trader finalizes a deal and secures a price, he is no longer concerned by unfavorable price shifts. For example, if a seller trades a specific contract for $ 450 and soon after the price comes down to $440, there has been an unfavourable price shift but the seller has made a profit of $10. At this point, the risk has been transferred to the buyer of the contract. Speculators trade on commodities and derivatives by undertaking risks in order to maximize profits.
Information: Exchanges produce huge volumes of data that are intensely scrutinized and monitored by a wide cross-section of people as the data provides gainful insights about the prevailing economic conditions.
1. Bhatinda Om & Oil Exchange Ltd., Batinda.
2. The Bombay Commodity Exchange Ltd., Mumbai
3. The Rajkot Seeds oil & Bullion Merchants` Association Ltd
4. The Kanpur Commodity Exchange Ltd., Kanpur
5. The Meerut Agro Commodities Exchange Co. Ltd., Meerut
6. The Spices and Oilseeds Exchange Ltd.
7. Ahmedabad Commodity Exchange Ltd.
8. Vijay Beopar Chamber Ltd., Muzaffarnagar
9. India Pepper & Spice Trade Association, Kochi
10. Rajdhani Oils and Oilseeds Exchange Ltd., Delhi
11. National Board of Trade, Indore
12. The Chamber Of Commerce, Hapur
13. The East India Cotton Association, Mumbai
14. The Central India Commercial Exchange Ltd., Gwalior
15. The East India Jute & Hessian Exchange Ltd.
16. First Commodity Exchange of India Ltd, Kochi
17. Bikaner Commodity Exchange Ltd., Bikaner
18. The Coffee Futures Exchange India Ltd, Bangalore
19. Esugarindia Limited
20. National Multi Commodity Exchange of India Limited
21. Surendranagar Cotton oil & Oilseeds Association Ltd
22. Multi Commodity Exchange of India Ltd
23. National Commodity & Derivatives Exchange Ltd
24. Haryana Commodities Ltd., Hissar
25. e-Commodities Ltd
Of these 25 commodities exchanges the MCX, NCDEX and NMCEIL are the major Commodity Exchanges.
Multi commodity exchange of India Ltd - MCX is an independent and de-mutualised exchange based in Mumbai. Established on 10 November, 2003, it is the third largest bullion exchange and fourth largest energy exchange in the world. Recognized by the Government of India it deals in numerous commodities and carries out online trading, clearing and settlement processes forcommoditie future market countrywide.
MCX COMDEX is India's foremost and sole composite commodity futures price index
National Commodity & Derivatives Exchange of India Ltd (NCDEX) located in Mumbai, is a public limited company incorporated on 23rd April 2003. Promoted by national level establishments it is run by professional management. Regulated by the Forward Market Commission with reference to futures trading in commodities, it trades in various commodities online. The NCDEX is covered by:
National Multi-Commodity Exchange of India Limited (NMCEIL) is considered the first de-mutualised, online exchange dealing in numerous commodities. Incorporated on 20th December 2001, it is promoted and run by:
The Commodity Exchanges with their extensive reach embrace new participants, resulting in a powerful price discovery process.