Commodities are more than what you think
they are. Almost everything you see around is made of
what market considers Commodities. A Commodities could
be an article, a product or material that is bought
and sold. It could be any kind of movable property,
except actionable claims, money and securities.
Commodities trade forms the backbone of
world economy.The Indian Commodities market is estimated
to be around Rs. 11 million, and forms almost 50 percent
of the Indian GDP.
It deals with agricultural Commodities
such as rice, wheat, groundnut, tea, coffee, jute, rubber,
spices and cotton. Besides precious metals such gold
and silver, the Commodities market also deals with base
metals like iron and aluminum and energy Commodities
such as crude oil and coal. The list is long.
What do the Commodities brokers
do? They simply facilitate the business of buyers and
sellers, for a legalized rate of commission.
FUTURES MARKET, BENEFICIAL MARKET
Humans, ever since they began farming, searched
for ways to face the vagaries of weather. With the arrival
of market systems, their challenge increased. They now
needed to ensure just price for their product.
Indian farming, faced with droughts,
floods and natural calamities, has always been a bet
on the nature. When farmer wins the bet and come to
market, the supply is more than the actual demand. That
pushes the price down, shattering the farmer. Futures
trading should be seen as an idea originated from framer’s
search to face the challenges of unpredictable weather
and fluctuating market prices.
It must have originated from the
execution of a prior to harvest agreement made between
the farmer (who promises to sell the harvest at a definite
price) and one who needs the grain (who agrees to buy
it at that price.)
As some 70 percent of Indians depend
on farming, directly and indirectly, the futures trading,
should be also seen as important nation building process.
It unquestionably helps farmer to get right price and
helps him escape the traps of middlemen.
The ancient system of oral agreement
between farmer and buyer, which the prototype of Future
Trading, gradually became contracts. Later, the buyer
began to make some advance payment for the surety of
the contracts. When contracts became a normal practice,
they were assigned the value of the Commodities themselves.
Also, these contracts began to be sold and bought just
as the Commodities.
For example, let us suppose that
a person got into a contract with a farmer to buy a
particular grain. What if he does not need that grain
any more? He could sell the contract to someone who
needs the grain!
But how does it help the farmer?
Okay. Take the case of a farmer who made a contract
but doesn’t want to sell his grain now. He can assign
the contract to some other farmer who is ready to sell.
Think again. There is a lot of gap
between the time of making the initial contract and
selling the product. Due to various reasons such as
weather, demand-supply mechanism of the market and political
policy changes, the price of the product could vary
when it is ready for selling. Either of the contract
parties can be in regrettable situation.
It is this situation that attracted
people, who don’t have own Commodities to sell or who
don’t really need to buy, into Futures Market. The practice
of buying Futures Contracts for less price and selling
them at higher price has became a part of Futures Market