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COMMODITY EXCHANGE - FM Updated

This document provides an overview of commodity exchanges. It defines a commodity exchange as a legal entity that enforces rules and procedures for trading commodities, contracts, and investments. The most traded commodity future contract is crude oil. Modern commodity exchanges trade metals, fuels, and agricultural products. Commodity exchanges provide transparency, efficiency, and standardization to commodity markets through features like standardized contracts and price discovery. The document then discusses the history and development of commodity exchanges, main participants, types of commodities traded, and characteristics of commodity trading. It also provides details on how commodity exchanges function and lists the major commodity exchanges in India.

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Nikhil Dass
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61 views

COMMODITY EXCHANGE - FM Updated

This document provides an overview of commodity exchanges. It defines a commodity exchange as a legal entity that enforces rules and procedures for trading commodities, contracts, and investments. The most traded commodity future contract is crude oil. Modern commodity exchanges trade metals, fuels, and agricultural products. Commodity exchanges provide transparency, efficiency, and standardization to commodity markets through features like standardized contracts and price discovery. The document then discusses the history and development of commodity exchanges, main participants, types of commodities traded, and characteristics of commodity trading. It also provides details on how commodity exchanges function and lists the major commodity exchanges in India.

Uploaded by

Nikhil Dass
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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COMMODITY

EXCHANGE
PRESENTED BY:
1. CEEZA AMIN D-13 19020441029
2. MAYURI BADE D-65 19020441331
COMMODITY EXCHANGE
• A LEGAL ENTITY THAT ENFORCES RULES AND PROCEDURE FOR TRADING
COMMODITY, CONTRACTS AND INVESTMENTS.
• THE MOST TRADED COMMODITY FUTURE CONTRACT IS CRUDE OIL.
• MODERN COMMODITIES EXCHANGES INCLUDE METALS, FUELS, AND
AGRICULTURAL COMMODITIES EXCHANGES.

IMPORTANCE:
• TRANSPARENCY AND EFFICIENCY
• STANDARDISATION: ON THE BASIS QUALITY,
QUANTITY, PRICE AND DELIVERY.
• LIQUIDITY
History
 Started in the 1800s in US
 Burgeoning grain trade being the reason.
 Chicago was the main hub
 Creation of forward contracts
 Risk to buyers
 Future contracts
Main participants
 Producers
- suppliers
-e.g.: farmers, cattle rancher, oil and gas companies.

 Industrial end users


- demand
-production process
-e.g.: food manufacturer, cloth factory, construction business.

 Speculators
- speculate direction of prices

 Traders
- independent traders and trading companies
- provide liquidity
- risk takers
Types of Commodities
 Commodity- Basic good interchangeable with other commodities of the
same type used in the production of goods and services.

 4 main categories:
1. Agricultural: Includes rice, corn, cocoa, coffee, sugar and cotton.
2. Livestock and Meat: Includes feeder cattle, pork bellies, live cattle etc.
3. Metals: Includes platinum, gold, silver,
aluminum and copper.
4. Energy: Includes crude oil, coal,
gasoline, heating oil, and natural gas.
Characteristics of Commodities
Trading
 Homogeneity: all units of a particular commodity must be perfectly identical

 Durability: durable so as to last for a period of a future contract

 Deliverability: All commodities also need to be physically deliverable. If we take


the case of crude oil, it is delivered in barrels. Likewise, wheat is delivered in
bushels.

 Open supply: should be open and free and should not be monopolized by one
or a few persons.
How do Commodities Exchange
function?
 Pit Trading- Open outcry in trading pits
Pit is a specific area of the trading floor that is
designated for the buying and selling of a
particular type of security through the open
outcry system.
In the pit, brokers match customers' buy and sell orders through shouting and hand
signaling. Ex: MCX of India, LME (London Metal Exchange), NYMEX (New York
Mercantile Exchange)

 Electronic Trading: Electronic Stock Exchange, posts the bid and ask quotes for
specific stocks dealers are willing to trade.
Commodity Trading in India
National Commodity Establishment Headquarter Trading commodities
Exchange
 India has Five national commodity exchanges namely:
National Multi 2002 Ahmedabad Castor Seeds,
Commodity Exchange Rapeseed, Mustard,
Soyabean, Seasame,
Copra, Black Pepper,
Multi Commodity Nov 2003 Mumbai Metal, Bullion, Fibre,
Exchange of India Ltd Energy, Pulses,
(MCX) Petrochemicals
National Commodity Dec 2003 Mumbai Cereals, Pulses,
and Derivatives Plantation products,
Exchange Limited Crude oil, Steel,
(NCDEX) Copper
Indian Commodity Nov 2009 Gurgaon Crude Oil, Natural
Exchange (ICEX) gas, Jute, Iron Ore,
Lead
Universal Commodity April 2013 Gurgaon Gold, Silver, Mustard,
Exchange Turmeric

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