Commodity
market is being divided into two major groups; they are differentiated on the
basis of the mode of trading that is the physical trading where the metals are
actually bought and sold and are also immediately being delivered. Whereas the
other group is the derivative trading where the products are being traded in
the future contracts, where the date of delivery is decided upon for a future
date.
Commodity
market has been
a center of attraction for the traders since ages and the growth of the market
depends upon two of the major factors:
Liberalization
brought about in capital and commodity market.
Introducing derivative
market as a new financial tool.
Regulations
of commodity market
Future
contracts for commodity trading that are derivatives are being guarded by the
three bodies of the system which are:
a)
Government
of India.
b)
The commodity exchange.
c)
Forward
market commission.
Government
of India regulates various parts and practices of commodity market, they
economic conditions also effect a lot on the movement of various products of
the commodity market.
The
commodity exchange has shown remarkable growth from the time of inception of
the market. Now there are about 22 commodity exchanges in India amongst which 3
are of national level commodity exchange, which are NMCE 2000 (National
Multi-Commodity Exchange of India Ltd), MCX :2003 and NCDEX: 2003.
Forward
market commission is for protecting the interest of the customers and non
members. It is for safeguarding the integrity of the financial market.
There are
many types of derivatives which are considered to be important from the trading
point of view:
Forwards,
futures, options and swap
Forwards: It’s an agreement between two
parties over the counter for the exchange of products/goods at a set price. The
forwards vary from another in terms of contract size, expiration date and asset
type.
Futures: Futures are legalized contracts
between buyers and sellers.
Options: Option is a type of derivative
where one party gives another party a right of buying or selling.
Swap: It’s an exchange of cash flow for a
set period of time between two parties.
The
technical team analyzes the movement in the market and studies the trends of
the market for the future contracts. The MCX tips
are analytically evolved and given in the market for trading in the market.
Derivative market has become a very competitive place for traders to trade, for
the following reasons
Risk Management: derivative trading reduces the risk
and increases the interest holding the assets. It helps in identifying the
desired and actual level of risk and then changing the actual level to desired
level of risk.
Increases Liquidity: Derivative market trading helps in
increasing the liquidity of the products. This helps the traders to trade the
underlying assets and financial products more readily. Derivatives also decide
the consumption and production decisions, this helps in proper division of the
resources.
Commodity
market has evolved as the best place for earning profit for the experienced and
novice traders. The commodity
tips helps in doing this provided by the experience of the research
analyst who are watching the market since ages.
