A Commodity Exchange is a market, physical or virtual, where buyers and sellers trade in unbranded commodities. There are 24 such exchanges in India including three at the national level – (i) National Multi Commodity Exchange of India Limited (NMCE), Ahmedabad; (ii) Multi Commodity Exchange of India Limited (MCX), Mumbai, and (iii) National Commodity and Derivatives Exchange (NCDEX), Mumbai.
Commodity Trading
The trading mechanisms are similar to those in operation in the equity markets. There is a spot market where commodities are purchased and sold for immediate delivery. And, there is a futures market where the fixed quantity of the commodity is traded for delivery on the contracted date at the contracted rate. Agricultural commodities such as coffee, cotton, groundnut, rice, rubber, spices, tea, and wheat, minerals – aluminium, gold, silver and zinc, and coal and crude oil are traded on commodity exchanges
Advantages
- By contracting a futures sale, a producer makes sure of his cash inflow. He can be sure that the agreed quantity will fetch him the contracted price on the specified date;
- Futures trading helps commodity traders and exporters hedge risks against adverse fluctuations in prices;
Recent Development
The regulation of commodity exchanges has been taken over by the Securities and Exchange Board of India from the Forward Markets Commission.
