Trading in food product is not a new thing, it started from ancient time. People were exchanging for different food product between them. But as the time passes toward the future, as the commodity market goes organized.
But the starting of commodities trading in proper organized way from 19th century. Trading in commodity is not only limited in food product it also covers the other valuable products like gold, silver, copper etc.
As the market develop in rapid speed as the participant, volume and products increases simultaneously and today it reach all over the world. Now a days it plays an important part to represent an economy.
Commodity Market :- Commodity market is the place where commodity products are bought and sold. We can distinguished the commodity product into two category such as-
Soft commodity and Hard commodity. In soft commodity agriculture products such as wheat, sugar soyabean, and other seeds are includes.
In hard commodity includes gold, silver, copper and other precious metals and natural gas and crude oil.
Commodity market provides two other facility to trade in market called Spot market and Derivative market.
-Spot Market :- In this market all the exchanging take place instantly. i,e at the negotiated price, they bought and sold the commodities product. There are so many mandis present to deal with this type of commodities. In spot market buying and selling of commodities in cash with instant delivery.
-Derivative Market :- This market provide the facility to buyer or seller to buy or sell commodity product via Derivative contracts . A derivative contract is an agreement and a standard proforma to buy or sell commodity products for the particular price and for a fixed time period in the future. In future contracts buyer can take the physically delivery of commodity on specified cost.
Derivative Contract :- It is an agreement between two parties i.e, Buyer and Seller, where the value of the contract is obtain from the value of an underlying asset. It can be stocks, metals etc.
Here are some commonly used contracts are :
-Forward Contract :- It is a customized contract between two parties to exchange assets at specific future date and price. On the due date of contract, deal is executed and seller party have to deliver the asset and buyer have to pay the amount.
-Futures Contract :- It is an agreement between two parties to exchange commodities at pre-determined price in the future. The price of commodity is fixed by the bidding process.
-Option Contract :- This contracts give the right to the owner not the obligation to buy or sell on negotiated amount of the commodity on or before the specified date.
The Participant :- They are the main entity of commodity market.
Here are some participant of market are :
-Day Traders Or Intraday :- They are the short term traders. Who take position for a single day or less time. Trader can take share market tips from various resources.
-Position Traders :- They are the long term traders. Who take position for a weeks or even months .
-Brokers :- It acts as a mediator between trader and exchange and provide a platform to buy or sell commodities.
-Exchange :-It is a central place where financial instrument are traded. Financial instrument like Commodities, Equity, Mutual funds etc
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