Fundamental Factors Affecting the Commodity Market

Standard

The Indian economy is witnessing a mini revolution in commodity derivatives and risk management. Commodity options trading and cash settlement of commodity futures had been banned since1952 and until 2002 commodity derivatives market was virtually non-existent, except some negligible activation an OTC basis. Now in September 2005, the country has 3 national level electronic exchange and 21 regional exchanges for trading commodity future derivatives. As many as 103 commodities have been allowed for derivative trading. In this article we will discuss the various aspects of Commodity Market.

Modern Commodity market

The modern commodity markets have their roots in the trading of agricultural products. While wheat and corn, cattle and pigs, were generally traded using standard instruments in the 19th century in the United States, other basic foodstuffs such as soybeans were only added quite recently in most markets. For a commodity market to be established there must be very wide consensus on the variations in the product that make it acceptable for one purpose or another. The economic impact of the growth of commodity markets is hard to misjudge. Through the 19th century “the exchanges became effectual spokesmen for, and innovators of, improvements in transportation, warehousing, and financing, which paved the way to expanded interstate and international trade.

Fundamental factors affecting the commodity Market

Commodity trading is trading in commodity derivatives that include a range of commodities from Petals, Precious metals, Energy and Agricultural commodities.

  • Risk & Return
  • Trading, Clearing and Settlement
  • Demand & supply
  • Demand Curve
  • Global and domestic economy
  • Economic growth
  • Inflation
  • Geo-political concerns
  • Extra-ordinary events
  • Speculation

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