The commodity market are distinguished into two groups; they are differentiated on the basis of the mode of trading that is the physical trading where the metals are actually bought and sold and are also immediately be delivered. Whereas the other group is the derivative trading where the products are being traded in the future contracts via appropriate MCX tips, where the date of delivery is decided upon for a future date.
The market depends upon two of the major factors:
Liberalization brought about in capital and commodity market.
Introducing the derivative market as a new financial tool.
Regulations of commodity market
Future contracts for commodity trading that are derivatives are being guarded by the three bodies of the system which are:
a) The government of India.
b) The commodity exchange.
c) Forward market commission.
The Indian government regulates several objects and practices of the commodity market, the economic conditions also affect a lot on the movement of various products of the commodity market. The commodity exchange has noticed a tremendous growth from the time of inception of the market.
The forward market commission is for protecting the interest of the customers and nonmembers. It is for safeguarding the integrity of the financial market.
There are many types of derivatives which are considered to be important from the trading point of view:
Forwards, futures, options, and swap
Forwards: It’s an agreement between two parties over the counter for the exchange of products/goods at a set price. The forwards vary from another in terms of contract size, expiration date, and asset type.
Futures: Futures are legalized contracts between buyers and sellers.
Options: Option is a type of derivative where one party gives another party a right of buying or selling.
Swap: It’s an exchange of cash flow for a set period of time between two parties.
The technical team analyzes the movement in the market and studies the trends of the market for the future contracts. The market researchers are analytically involved and provide market assistance in the market for trading in the market. Derivative market has become a very competitive place for traders to trade, for the following reasons
Risk Management: derivative trading reduces the risk and increases the interest in holding the assets. It helps in identifying the desired and actual level of risk and then changing the actual level to the desired level of risk.
Increases Liquidity: Derivatives market trading help in increasing the liquidity of the products. This helps the traders to trade the underlying assets and financial products more readily. Derivatives also decide the consumption and production decisions, this helps in the proper division of the resources.
Commodity market has evolved as the best place for earning a profit for the experienced and novice traders. The commodity tips help in doing this provided by the experience of the research analyst who is watching the market for ages.