It's an age-old phenomenon. Modern markets came up in the late 18th century, when farming began to be modernised. Though the trade's mechanisms have changed, the basics are still the same.
In common parlance, commodities means all types of products. However, the Foreign Currency Regulation Act (FCRA) defines them as 'every kind of movable property other than actionable claims, money and securities.'
Commodity trading is nothing but trading in commodity spot and derivatives (futures). If you are keen on taking a buy or sell position based on the future performance of agricultural commodities or commodities like gold, silver, metals, or crude, then you could do so by trading in commodity derivatives.
Commodity derivatives are traded on the National Commodity and Derivative Exchange (NCDEX) and the Multi-Commodity Exchange (MCX). Gold, silver, agri-commodities including grains, pulses, spices, oils and oilseeds, mentha oil, metals and crude are some of the commodities that these exchanges deal in.
Trading in commodities futures is quite similar to equity futures trading. You could take a long position (where you buy a contract) or a short position (where you sell it). Simply speaking, like in equity and other markets, if you think prices are on their way up, you take a long position and when prices are headed south you opt for a short position.
Saturday, May 17, 2008
History of Commodity
Food production was augmented with using technology and improved efficient tools after the Industrial Revolution. The economic development was at par with the population growth. The living standards also started to rise. The increase in production resulted in the need for more storage space and also efficient transportation of the food grains. Initially cash markets were able to handle these needs and with the passage of time, the ever growing production and large quantities of produce necessitated the future markets to regulate the price, quality and distribution of the bumper harvests. The purchasers have found a way to steer clear of the price. The commodity price was locked in well in advance of the time they were actually needed. The trader can profit taking advantage of any fluctuation in the prices by buying or selling the commodities according to the situation.
Market Options
Any opinions, news, research, analyses, prices, or other information contained on this website is provided as general market commentary, and does not constitute investment advice. BabyPips.com will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
Internet Trading Risks
There are risks associated with utilizing an Internet-based deal execution trading system including, but not limited to, the failure of hardware, software, and Internet connection. Since BabyPips.com does not control signal power, its reception or routing via Internet, configuration of your equipment or reliability of its connection, we cannot be responsible for communication failures, distortions or delays when trading via the Internet.
Accuracy of Information
The content on this website is subject to change at any time without notice, and is provided for the sole purpose of assisting traders to make independent investment decisions. BabyPips.com has taken reasonable measures to ensure the accuracy of the information on the Web site. However, BabyPips.com does not guarantee its accuracy, and will not accept liability for any loss or damage which may arise directly or indirectly from the content or your inability to access the website, for any delay in or failure of the transmission or the receipt of any instruction or notifications sent through this website.
Distribution
This site is not intended for distribution, or use by, any person in any country where such distribution or use would be contrary to local law or regulation. None of the services or investments referred to in this website are available to persons residing in any country where the provision of such services or investments would be contrary to local law or regulation. It is the responsibility of visitors to this website to ascertain the terms of and comply with any local law or regulation to which they are subject.
Internet Trading Risks
There are risks associated with utilizing an Internet-based deal execution trading system including, but not limited to, the failure of hardware, software, and Internet connection. Since BabyPips.com does not control signal power, its reception or routing via Internet, configuration of your equipment or reliability of its connection, we cannot be responsible for communication failures, distortions or delays when trading via the Internet.
Accuracy of Information
The content on this website is subject to change at any time without notice, and is provided for the sole purpose of assisting traders to make independent investment decisions. BabyPips.com has taken reasonable measures to ensure the accuracy of the information on the Web site. However, BabyPips.com does not guarantee its accuracy, and will not accept liability for any loss or damage which may arise directly or indirectly from the content or your inability to access the website, for any delay in or failure of the transmission or the receipt of any instruction or notifications sent through this website.
Distribution
This site is not intended for distribution, or use by, any person in any country where such distribution or use would be contrary to local law or regulation. None of the services or investments referred to in this website are available to persons residing in any country where the provision of such services or investments would be contrary to local law or regulation. It is the responsibility of visitors to this website to ascertain the terms of and comply with any local law or regulation to which they are subject.
Commodity Information
How big is the Indian commodity trading market as compared to other Asian markets?
The commodity market in India clocks a daily average turnover of Rs 12,000-15,000 crore (Rs 120-150 billion). The accumulative commodities derivatives trade value is estimated to have reached the equivalent of 66 per cent of the gross domestic product and the future will only see the percentage rising, says ICICI direct.com vice-president Kedar Deshpande.
What do you need to start trading?
Like equity markets, you have to fulfil the 'know your customer' norms with a commodity broker. A photo identification, PAN and proof of address are essential for registration. You will also have to sign the necessary agreements with the broker.
Is there a regulator for the commodity trading market?
The Forward Markets Commission is the regulatory body for the commodity market in India. It is the equivalent of the Securities and Exchange Board of India (Sebi), which protects the interests of investors in securities.
What kind of products can be listed on the commodity market?
All commodities produced in the agriculture, mineral and fossil sectors have been sanctioned for futures trading. These include cereals, pulses, ginned cotton, un-ginned
cotton, oilseeds, oils, jute, jute products, sugar, gur, potatoes, onions, coffee, tea, petrochemicals, and bullion, among others.
The commodity market in India clocks a daily average turnover of Rs 12,000-15,000 crore (Rs 120-150 billion). The accumulative commodities derivatives trade value is estimated to have reached the equivalent of 66 per cent of the gross domestic product and the future will only see the percentage rising, says ICICI direct.com vice-president Kedar Deshpande.
What do you need to start trading?
Like equity markets, you have to fulfil the 'know your customer' norms with a commodity broker. A photo identification, PAN and proof of address are essential for registration. You will also have to sign the necessary agreements with the broker.
Is there a regulator for the commodity trading market?
The Forward Markets Commission is the regulatory body for the commodity market in India. It is the equivalent of the Securities and Exchange Board of India (Sebi), which protects the interests of investors in securities.
What kind of products can be listed on the commodity market?
All commodities produced in the agriculture, mineral and fossil sectors have been sanctioned for futures trading. These include cereals, pulses, ginned cotton, un-ginned
cotton, oilseeds, oils, jute, jute products, sugar, gur, potatoes, onions, coffee, tea, petrochemicals, and bullion, among others.
Share Market Risk Factors
Commodity trading is done in the form of futures and that throws up a huge potential for profit and loss as it involves predictions of the future and hence uncertainty and risk. Risk factors in commodity trading are similar to futures trading in equity markets.
A major difference is that the information availability on supply and demand cycles in commodity markets is not as robust and controlled as the equity market.
What are the factors that influence the commodity prices in the market?
The commodity market is driven by demand and supply factors and inventory, when it comes to perishable commodities such as agricultural products and high demand products such as crude oil. Like any market, the demand-supply equation influences the prices.
Variables like weather, social changes, government policies and global factors influence the balance.
What is the difference between directional trading and day trading?
The key difference between commodity markets and stock markets is the nature of products traded. Agricultural produce is unpredictable and seasonal. During harvesting season, the prices of these commodities is low as supply goes up. There are traders who use these patterns to trade in the commodity market, and this is termed directional trading.
Day trading in commodity markets is no different from day trading in the equity market, where positions are bought in the morning and squared off by the end of the day.
Does commodity speculation affect agricultural income in India?
The vision for the commodity market in India is to reduce information asymmetry and make a robust market available to the end producer or farmer. It is also expected to balance out price information and give the producer a better price and a platform to hedge.
The futures market will allow the farmer to see the upside of the price over two to three months and help him decide where to sell.
A major difference is that the information availability on supply and demand cycles in commodity markets is not as robust and controlled as the equity market.
What are the factors that influence the commodity prices in the market?
The commodity market is driven by demand and supply factors and inventory, when it comes to perishable commodities such as agricultural products and high demand products such as crude oil. Like any market, the demand-supply equation influences the prices.
Variables like weather, social changes, government policies and global factors influence the balance.
What is the difference between directional trading and day trading?
The key difference between commodity markets and stock markets is the nature of products traded. Agricultural produce is unpredictable and seasonal. During harvesting season, the prices of these commodities is low as supply goes up. There are traders who use these patterns to trade in the commodity market, and this is termed directional trading.
Day trading in commodity markets is no different from day trading in the equity market, where positions are bought in the morning and squared off by the end of the day.
Does commodity speculation affect agricultural income in India?
The vision for the commodity market in India is to reduce information asymmetry and make a robust market available to the end producer or farmer. It is also expected to balance out price information and give the producer a better price and a platform to hedge.
The futures market will allow the farmer to see the upside of the price over two to three months and help him decide where to sell.
Market Update
Most commodity trading firms have a research team in place that prepares commodity charts and conducts detailed study on the trends of the commodity in question.
Investing strategies based on this research are usually provided to clients.
They usually provide daily market reports before the market opens and intra-day calls during trading hours, along with monthly and weekly research reports.
Investing strategies based on this research are usually provided to clients.
They usually provide daily market reports before the market opens and intra-day calls during trading hours, along with monthly and weekly research reports.
Sugar Value
Sugar futures were in a steady downtrend during the first half of this year. Then, the market has consolidated for the last several months – trading between nine and eleven cents per pound.
Worldwide supplies of sugar are currently plentiful and that is the reason for the drop in prices this year. However, sugar now looks like a much cheaper component for the production of ethanol as many of the traditional grains have had substantial increases in price. This development should make the fundamentals look much better for sugar over the long-term.
Demand will likely increase for sugar-based ethanol as crude oil prices continue setting record highs. Brazil is the largest producer of sugar ethanol and it is likely their operations will continue to expand.
Technically, sugar futures have started to trend higher. With the supply and demand picture improving, the lows near 9 cents will likely hold. A break above 11 cents would look very positive.
Worldwide supplies of sugar are currently plentiful and that is the reason for the drop in prices this year. However, sugar now looks like a much cheaper component for the production of ethanol as many of the traditional grains have had substantial increases in price. This development should make the fundamentals look much better for sugar over the long-term.
Demand will likely increase for sugar-based ethanol as crude oil prices continue setting record highs. Brazil is the largest producer of sugar ethanol and it is likely their operations will continue to expand.
Technically, sugar futures have started to trend higher. With the supply and demand picture improving, the lows near 9 cents will likely hold. A break above 11 cents would look very positive.
Market Information
Futures and options exchanges are associations of members organized to provide competitive markets and the facilities and staffs to support such markets. The first U.S. futures exchange was the Chicago Board of Trade, organized in the mid-nineteenth century. Fifty years later, nearly all major U.S. exchanges that operate today had been formed. During the last decade the number of futures exchanges throughout the world has rapidly increased to more than 70.
In the United States, exchange membership is available only to individuals, some of whom hold a membership for their firm. Members of an exchange may exercise their trading privileges as independent market-makers (so-called floor traders or locals) trading for their own accounts or as floor brokers executing customer orders. Exchange members who trade both for customers and for themselves are called dual traders.
Today, the greatest amount of futures and futures options trading is conducted by open outcry in exchange pits or trading rings. However, computerized futures and options markets have grown significantly during the last decade, both as the sole mode of trading and as an after-hours supplement to open-outcry trading during regular business hours.
In open-outcry trading, exchange members stand in pits making bids and offers, by voice and with hand signals, to the rest of the traders in the pit. Customer orders coming into the futures pit are delivered to floor brokers or dual traders who execute them according to the order's instructions. For example, a "market" order tells the broker to execute the order immediately at the prevailing price in the pit; a "limit" order specifies the price (or better) at which the order can be filled; and a "stop" order tells the broker to execute an order at the market price if a certain price is reached. Other types of orders specify the time of the trade (e.g., at the market's open or close) or allow a broker discretion in the execution. Orders also can indicate the period for which they are valid, e.g., a day, a week or until canceled.
In the United States, exchange membership is available only to individuals, some of whom hold a membership for their firm. Members of an exchange may exercise their trading privileges as independent market-makers (so-called floor traders or locals) trading for their own accounts or as floor brokers executing customer orders. Exchange members who trade both for customers and for themselves are called dual traders.
Today, the greatest amount of futures and futures options trading is conducted by open outcry in exchange pits or trading rings. However, computerized futures and options markets have grown significantly during the last decade, both as the sole mode of trading and as an after-hours supplement to open-outcry trading during regular business hours.
In open-outcry trading, exchange members stand in pits making bids and offers, by voice and with hand signals, to the rest of the traders in the pit. Customer orders coming into the futures pit are delivered to floor brokers or dual traders who execute them according to the order's instructions. For example, a "market" order tells the broker to execute the order immediately at the prevailing price in the pit; a "limit" order specifies the price (or better) at which the order can be filled; and a "stop" order tells the broker to execute an order at the market price if a certain price is reached. Other types of orders specify the time of the trade (e.g., at the market's open or close) or allow a broker discretion in the execution. Orders also can indicate the period for which they are valid, e.g., a day, a week or until canceled.
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