INTRODUCTION TO COMMODITIES MARKET

COMMODITY

For the former, commodity is a largely homogeneous product, traded solely on the basis of price, whereas for the latter, it refers to wares offered for exchange. In the original and simplified sense, commodities were things of value, of uniform quality, that were produced in large quantities by many different producers; the items from each different producer are considered equivalent. It is the contract and this underlying standard that define the Commodity, not any quality inherent in the product. One can reasonably say that food commodities, for example, are defined by the fact that they substitute for each other in recipes, and that one can use the food without having to look at it too closely. At present, all goods and products of agricultural (including plantation), mineral and fossil origin are allowed for futures trading under the auspices of the commodity exchanges recognized under the FCRA. The national commodity exchanges have been recognized by the Central Government for organizing trading in all permissible commodities.

CHARECTERSTICS OF COMMODITY

A commodity has value, which represents a quantity of human labor. The fact that it has value implies straightaway that people try to economies itsuse. A commodity also has a use value, an exchange value and a price. It has a use value because, by its intrinsic characteristics, it can satisfy some human need or want, physical or ideal. By nature this is a Social use value,i.e. the object is useful not just to the producer but has a use for others generally. It has an exchange value, meaning that a commodity can be traded for other commodities, and thus gives its owner the benefit of others' labor (the labor done to produce the purchased commodity).

Price is then the monetary expression of exchange-value (but

exchange valuecould also be expressed as a direct trading ratio between two commoditieswithout using money).

ABOUT COMMODITY MARKET

T h e p r o c e s s o f e c o no m i c l i b e r a l i z a t io n i n I nd i a be g a n i n 1 9 9 1 . A s p a r t o f t h i s p r o c e s s , s e v e r a l c a p i t a l m a r k e t r e f o r m s w e r e c a r r i e d o u t b y t he c a p it a l m a r k e t regulator Securit ies and Exchange Board of India. One such measure was to allow trading in equities-based derivatives on stock exchanges in 2000. This step proved to be a shot in the arm of the capital market and volumes soared within three years. T he s u c c e s s o f t h e c a p it a l m a r k e t r e fo r m s mo t i v a t e d t h e g o v e r n m e nt a n d t h e Forward Market Commission (the commodities market regulator) to kick off similar reforms in the commodities market. Thus almost all the commodities were allowed to be t r a d e d i n t h e f u t u r e s m a r k e t fr o m Ap r i l 2 0 0 3 . T o ma k e t r a d i n g i n c o m mo d it y futures more transparent and successful, mult i-commodit y exchanges at nat ional level were also conceived and these next generation exchanges were allowed to start futures trading in commodities on-line. Commodities exchanges have seen a surge in commodity futures volumes in the last few years. This rise in volumes has been led by bullion (gold and silver) trading. Today a who le lot of commodit ies are available for trading in futures and the list is getting bigger by the day. No wonder then that the commodity futures market is being viewed as a significant business segment by many businessmen, investors, institutions, brokers, banks etc.

Of course there are still millions of Indians who are not aware that commodities other than gold and silver can also be traded in on commodity exchanges like equity. Fewer still know that commodities can be traded on-line. In this part of project I tried to cover every aspect of commodity trading and have been written in a language that is simple and lucid. I am c ertain that this will help me a long wa y in gen erating awa ren ess about commodity trading for me. The various money-making trading strategies for the commodities market discussed here it will also be of immense help to those billion investors who are already trading in commodities.