The commodity markets have their roots in the trading of agricultural products like wheat and corn, cattle and pigs, on the back of standard instruments in the 19th century in the United States, other basic foodstuffs such as soybeans were only added quite recently in most markets.
Later due to the economic impact, the development of commodity markets the exchanges were established, and this paved the way to expanded interstate and international trade.
The Base metals like Copper, Nickel, Zinc and Aluminium. Energy Products like Crude Oil and Natural Gas and Precious metals like Gold & silver are widely traded in the modern commodity exchanges across the world.
Key stats of Global Commodity Markets
Till the year – 2010
Volume (contracts traded) 2.5 billion million
Commodity Asset Under Mgt. $ 380 billion
Commodities Market – An Indian perspective
Along with the global commodities markets the Indian markets have also thrown open a new avenue for retail investors and traders to trade in commodity derivatives. This now provides an investor to diversify his portfolios beyond shares, bonds and real estate.
It was very difficult for retail investors to actually invest in commodities such as gold and silver or oilseeds in the futures market. This was nearly impossible in commodities except for gold and silver as there was practically no retail avenue for punting in commodities.
However, with the setting up of three multi-commodity exchanges in the country, retail investors can now trade in commodity futures and derivatives.
Commodities actually offer immense potential to become a separate asset class for market-savvy investors, arbitrageurs and speculators. Retail investors, who the equity markets may find commodities an immeasurable market. But commodities are easy to understand as far as fundamentals of demand and supply are concerned. Retail investors should understand the risks and advantages of trading in commodities futures before taking a leap. This market provides an efficient portfolio diversification option since pricing in commodities futures has been less volatile compared to other markets.
Let us now try an understand the prevailing Commodities Market Structure
We will look into the Commodity Eco system and go in detail into the Indian Commodity Markets in our Next Article.
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