| Ans. There are 24 commodity exchanges in India. There are three national level commodity exchanges to trade in all permitted commodities.
They are: -
Multi Commodity Exchange of India Ltd, Mumbai (MCX) www.mcxindia.com
MCX is an independent and de-mutualised multi commodity exchange. MCX features amongst the world's top three bullion exchanges and top four energy exchanges. Its key shareholders are Financial Technologies (I) Ltd., State Bank of India and it's associates, National Bank for Agriculture and Rural Development (NABARD), National Stock Exchange of India Ltd. (NSE), Fid Fund (Mauritius) Ltd. - an affiliate of Fidelity International, Corporation Bank, Union Bank of India, Canara Bank, Bank of India, Bank of Baroda, HDFC Bank and SBI Life Insurance Co. Ltd.
National Commodity and Derivative Exchange, Mumbai (NCDEX) www.ncdex.com
A consortium of institutions promotes NCDEX. These include the ICICI Bank Limited (ICICI Bank), Life Insurance Corporation of India (LIC), National Bank for Agriculture and Rural Development (NABARD) and National Stock Exchange of India Limited (NSE).
National Multi Commodity Exchange of India Ltd, Ahmedabad (NMCE) www.nmce.com
It is the first de-mutualised electronic multi-commodity Exchange of India. Some of its key promoters are Central Warehousing Corporation (CWC), National Agricultural Co Operative Marketing Federation of India Limited (NAFED), Gujarat Agro Industries Corporation Limited (GAIC) and Punjab National Bank (PNB).
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| 4. Why invest in commodities? |
| Ans. - Transparency and Fair Price Discovery: Trading in commodity futures is transparent and a process of fair price discovery is ensured through large-scale participation. The large participation also reflects views and expectations of a wider section of people concerned with that commodity.
- Online Platform: Producers, traders and processors, exporters/importers get an online platform through MCX / NCDEX for price risk management.
- Hedging: It provides a platform for producers to hedge their positions according to their exposure in physical commodity.
- No Insider Trading: Dealing in commodities is free from the evils of insider trading. Besides, there are no company specific risks as those seen in stock markets.
- Simple Economics: Commodity trading is about the simple economics of demand and supply. More the demand for a commodity higher is its price and vice versa.
- Trade on Low Margin: Commodity Futures traders are required to deposit low margins, roughly 5 to 10% of the total value of the contract, much lower compared to other asset classes. The low margin, which again varies across exchanges and commodities, facilitates the taking of large positions at lower capital.
- Seasonality Patterns: Quite often provide clue to both short and long term players.
- No Counter party Risk: Much like the exchanges in the equity market, Commodity Futures market have Clearing Houses, which guarantee that the terms of the contracts are fulfilled, thereby eliminating the counter party risk.
- Wide Participation: The emergence of online trading would enable growth in the commodity market, much akin to the one seen in the equity market. It would also ensure bringing the market closer to both, the user and the trader.
- Evolved Pricing: The rise in participation would decrease the risk of cartelisation, ensuring a holistic view on the commodity. Hence, pricing would be more practical and less irrational leading to Fair Price Discovery Mechanism.
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| 5. Who invests in commodities? |
| Ans. - Investors.
- Producers / Farmers.
- Importers / Exporters.
- Commodity financers.
- Agricultural credit providing agencies.
- Hedgers, speculators, arbitrageurs.
- Large scale consumers. For e.g. refiners, jewelers, textile mills.
- Corporates having risk exposure in commodities.
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| 6. Give the Comparison between Commodities and Equities? |
| Ans. - Commodity Futures Equity Futures
- Regulator FMC/ SEBI
- Exchanges NCDEX, MCX BSE, NSE
- Assets Metals, Energy & Agro Commodities Stocks
- Sales Tax Applicable Not Applicable
- Delivery Physical / Cash Settlement Cash Settlement
- Quality Applicable Not Applicable Applicable
- Working Days Mon to Sat Mon to Fri
- Timing 10 am - 11.55 pm
- 10 am - 2.00 pm (SAT) 10 am - 3.30 pm
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| 7. What are the tradable commodities? |
| Ans. Yes, Odd lot share certificates can also be dematerialised.
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| 4. How do I demat shares with Pre-Marital / Maiden names? |
| Ans. Bullion Gold and Silver
Oil & Oilseeds Castor Seeds, Soy Seeds, Castor Oil, Refined Soy Oil, Soy meal, Crude Palm Oil, Groundnut Oil, Mustard Seed, Mustard Seed Oil, Cottonseed Oilcake, Cottonseed.
Spices Pepper, Red Chilli, Jeera, Turmeric, Cardamom
Metals Steel Long, Steel Flat, Copper, Nickel, Tin, Steel, Aluminium Zinc ingots
Fibre Kapas, Long Staple Cotton, Medium Staple Cotton
Pulses Chana, Urad, Yellow Peas, Tur, Yellow Peas
Grains Rice, Basmati Rice, Wheat, Maize, Sarbati Rice, Jeera
Energy Crude Oil, Natural Gas, Brent Crude
Others Rubber, Guar Seed, Guar gum, Cashew, Cashew Kernel, Sugar, Gur, Coffee, Silk, Sugar.
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| 8. Do physical deliveries happen in commodity futures exchanges? |
| Ans. No, shares can be bought and sold only through a stockbroker. Shriram Insight Demat helps in delivering the shares against a sell transaction or receiving the shares for a buy transaction. You can open an account with shriraminsight to avail of seamless trading and settlement.
The exchanges, in order to maintain the futures prices in line with the spot market, have made available provisions of settlement of contracts by physical delivery. They also make sure that the futures and spot prices coincide during the settlement so that the fair price discovery mechanism is in place. |
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| 9. How do I know which quality is being traded in futures as Commodities have many qualities? |
| Ans. The quality specification of each commodity is mentioned in the contract. Each participant will be trading in that particular quality only.
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| 10. Are Options also allowed in commodity derivatives? |
| Ans. Options in goods are presently prohibited under Section 19 of the Forward Contracts (Regulation) Act, 1952. No exchange or person can organize or enter into or make or perform options in goods. However the market expects the government to permit options trading in commodities soon.
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