Commodities Exchange

Introduction

• A commodities exchange is a legal entity that facilitates trading of standardized commodity contracts and related investment products.
• Transactions in a commodities exchange are very large in size, trading of billions of dollars took place in a day.
• Traders rarely deliver any physical commodities through a commodities exchange. Instead, they trade futures contracts, where the parties agree to buy or sell a specific amount of the commodity at an agreed-upon price, regardless of what it currently trades at in the market at a predetermined expiration date. 
• The most traded commodity futures contract is crude oil.
• Commodity Exchange was first regulated by Forward Market Commission (FMC) but with the merger of FMC with SEBI in 2015 it is now regulated by SEBI.

Features of a Commodities Exchange

• Traders serve as an intermediary between the producers and the end-users.
• Speculators bet on the movement of commodity prices and they often serve as the source of liquidity for the producers.
• Commodities exchange decides the delivery date of each contract, along with the method and place.
• Contracts are traded on behalf of the commodities and the actual commodities are to be delivered on contract maturity. 
• Commodities exchanges provide a marketplace for better price discovery.
• Commodities exchanges provide hedging opportunities and also provide options to transfer risks.

Major Commodity Exchange in India 

• Multi Commodity Exchange (MCX): The Multi Commodity Exchange of India Limited (MCX), India’s first listed exchange, is a state-of-the-art, commodity derivatives exchange that facilitates online trading of commodity derivatives transactions. commodities like gold, silver, copper, zinc, lead, crude oil, natural gas (NG) nickel, aluminum, etc are traded.
• National Commodities and Derivative Exchange (NCDEX): The National Commodity and Derivatives Exchange (NCDEX) is a commodities exchange dealing primarily in agricultural commodities in India. The NCDEX was established in 2003, and its headquarters are in Mumbai.
• National Multi-commodity Exchange (NMCE): The NMCE merged with the Indian Commodity Exchange, (ICEX) in 2017. The combined exchange is India’s third-largest commodities market offering contracts on oils and oil seeds, coffee, rubber and spices.