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What is a Commodity Market?

Commodity market is that the market wherever buying and selling of commodities takes place. it’s the first economic sector for the exchange/trading of essential product and product. The commodities can be segmented as

i) Agricultural commodity and

ii) Non Agricultural commodity.

Agricultural commodity includes farm produces like cotton, coffee, tea, sugar, wheat, etc.

Non Agricultural Commodities consists Precious metals (Gold, Silver, Platinum), Industrial Metals (Copper, Lead, Zinc, Nickel), and Energy (Crude oil, Natural Gas)

Commodity market has evolved considerably from time to time. From barter system to the leading edge trading through electronic platforms commodities are being traded globally on numerous platforms. Traders’ and investors’ interest in commodity trading has raised considerably over the past few years with accessibility of various financial product.

Indian commodity market has continuously been center of attraction for international investors. Being major producer and businessperson of agro commodities, Indian commodity market is known for global agro physical traders. The recent regulation changes and introduction of choices derivatives has raised scope and can step by step increase size of Indian commodity market.
What are the commodities?

Commodities are the products, a staple or primary agricultural product which will be bought and sold-out. Commodities are typically used as inputs within the production of different product and services. normally listed commodities are energy product like oil and gas, Precious metals like gold, silver, industrial metals like copper, and agricultural product like cotton, Jeera, Soybean.
How costs are determined?

Commodity costs are determined mostly by provide and demand numbers at international market. supply and demand is influenced by numerous factors like production, consumption, climatic conditions, government policies, geo-political events etc.
How does one invest in commodity markets?

Apart from dealing in physical market and over-the-counter, the foremost common way to invest in commodities is via derivative, which might be either buying or selling in future for a selected commodity at a specific value for a selected contract. Futures are accessible for commodities like oil, gold, silver, gas and additionally for agricultural product like wheat, sugar, tea, coffee, etc.

Four classes of commodities trading

Energy (including oil, fuel oil, gas and gasoline)
Metals (including gold, silver, noble metal and copper)
stock and Meat (including lean hogs, pork bellies, live cows and feeder cattle)
Agricultural (including corn, soybeans, wheat, rice, cocoa, coffee, cotton and sugar)

What is goods trading?

Traders / Investors take positions in particular commodity prediction costs trend taking thought of supply demand factors and economic projection of production and consumption. Traders buy/Sell within the market with chance on a value trend. the foremost normally listed commodities are Gold, Silver, crude oil and Copper. there’s conjointly a marketplace for cotton, sugar, tea, coffee, sugar, wheat, jeera and other Non-Agro Commodities.

Is commodity securities?

Securities and commodities each are listed on the exchange; since they’re liquid they’ll be simply exchanged. The SEBI regulates commodity derivative Markets in india Since September 2015. before SEBI, forward market commission regulated commodities market.

What is a derivatives market?

A derivative may be a financial instrument whose worth is predicated on the worth of another asset, which trades on a regulated exchange. Futures and options are two of the most common exchange listed derivatives. These derivatives may be used to hedge exposure or speculate on a large range of economic assets like commodities, equities, currencies, and even interest rates. they’re divided in two, OTC-Over the counter and ET-Exchange traded.

Commodity derivatives markets are existing for years, driven by the efforts of commodities producers, users, traders and investors to manage their business and financial risks.

Producers need to manage the exposure to changes within the costs they receive for his or her produce. they’re largely targeted on achieving a similar impact as fastened costs on contracts to sell their manufacture. A silver producer, as an example, desires to hedge its losses from a fall within the value of silver for its current silver inventory. Agricultural producers have to be compelled to hedge the risk of value changes in cotton, coffee, beans and different commodities they sell.

End-users need to hedge the costs at that they’ll purchase commodities. an refinery and oil selling company desires to lock within the value of the oil it has to purchase so as to satisfy the height in demand. Investors and financial intermediaries will either purchase or sell commodities through the utilization of derivatives. Today, the {commodity|trade goods|goods|artifact|artefact} derivatives market is that the primary economic sector for the exchange/trading of essential goods and product.

Why to invest/trade in commodities?

The values of the commodities tend to be related with price of different assets like stocks and bonds. the general volatility tends be lesser. Risk by capitalist is volatility, thus once the volatility is lower the risk is additionally lower.

Portfolio Diversification
Hedging (specially for physical traders)
Low margin – High leverage
High risk High return asset class
restricted Scripts to tracks
Extended Market hours (10 am to 11:30 pm)
is a separate plus category for market savvy investors, arbitrageurs and speculators
straightforward to grasp with simple supply demand fundamentals
removed from Manipulation

What is an ‘Exchange traded Derivative’?

An exchange traded derivative is a financial instrument whose value is predicated on the worth of another asset, which trades on a regulated exchange. Futures and options are two of the foremost common exchange traded derivatives. These derivatives may be used to hedge exposure or speculate on a good vary of economic assets like commodities, equities, currencies, and even interest rates.

Key Tips:

commodity prices are negatively related with currencies (Example: Gold and dollar Index)
commodity prices square measure sensitive to climatic conditions (Example: gas prices and winter/summer weather conditions)
commodity prices are a lot of related with economic data (Example: Stock position, ETF holdings etc.)